The IIP growth has surprised on the upside accelerating to an eight-month high of 7.1 percent in April supported by a broad-based improvement across sectors with strong growth recorded in the manufacturing and electricity sector, said CareEdge. The improved performance of industrial activity is also in line with the rise in the core sector output to a six-month high in April.
Index of Industrial Production (y-o-y%) | Source: MOSPI
Mining sector grew by 7.8 percent in April from 3.9 percent in the previous month helped by a low base of last year. Strong growth in electricity output continued as it accelerated to an eight-month high of 11.8 percentduring the month. Electricity consumption has been witnessing a steady improvement on the back of pick-up in demand from the industrial and commercial sector. Also, heatwave like conditions in several parts of the country have further contributed to increased power demand.
Momentum in manufacturing output (which has the largest share in the industrial output index) rose to 6.3 percent in April, highest over the last eight months. Within manufacturing, the annual increase in output was witnessed in 18 out of 23 categories. Double-digit growth was recorded in manufacture of wearing apparel (65.7 percent), furniture (57.8 percent), printing and reproduction of recorded media (38 percent), beverages (29.7 percent), tobacco products (23.1 percent), coke and refined petroleum products (10.6 percent).
The strong growth appears encouraging given the headwinds faced by the sector from high input prices, and supply-chain bottlenecks. Within the use-based classification of IIP, performance of consumer non-durable goods continued to be lacklustre at 0.3 percent, however growth in consumer durables sprung back in to the positive territory after witnessing negative growth for six months in a row.
Output of consumer durables grew by 8.5 percent supported by a relatively low base of last year. Capital goods output witnessed a double-digit growth of 14.7 percent after having witnessed subdued growth over the past few months.
Growth in consumer durables and capital goods segment will have to be closely watched over the coming months to monitor if this growth momentum is sustained. Growth in output of infrastructure and construction goods slowed to 3.8 percent from 6.7 percent in the previous month. The intent to invest by the private sector is improving as seen in the rising capacity utilisation level and data on new investment projects announced. Further, government’s capex push will be a major driving force for growth in this segment going ahead.
Component wise Breakup of IIP Growth (y-o-y%) | Source: MOSPI
Way Forward
The sharp jump in IIP has come as a positive surprise. It will be critical to watch for next few months to see if this growth momentum is sustained. There will continue to be challenges for the industrial sector in the form of high commodity prices. However, a gradual pick up in consumption and investment demand would be supportive of the sector, going forward, CareEdge said.
