Aided by strong show in electricity generation and mining sector, factory output growth for May surprised on the upside coming in at a 7-month high of 5.9 per cent, data released by Commerce and Industry Ministry showed on Friday.
The overall Index of Industrial Production (IIP) has been at 5 or above 5 per cent for four straight months now.
The latest reading of IIP growth of 5.9 per cent was higher than both the 5.7 per cent growth recorded in May last year and also the revised 5 per cent growth seen in April.
However overall manufacturing growth fell in May to 4.6 per cent (6.3 per cent). It was better sequentially compared to 3.9 per cent in April 2024.
For April-May 2024, the IIP grew 5.4 per cent, higher than 5.1 per cent in the same period last year.
Key sectors
In May, the growth rates of the three sectors, mining, manufacturing and electricity – stood at 6.6 per cent (6.4 per cent), 4.6 per cent (6.3 per cent) and 13.7 per cent (0.9 per cent), respectively. The 13.7 per cent growth in electricity was a seven-month high.
Within the manufacturing sector, the growth rates of the top three positive contributors to the growth of IIP for May 2024 are – basic metals (7.8 per cent); pharmaceuticals, medicinal chemical and botanical products (7.5 per cent), and electrical equipment (14.7 per cent).
In use-based classification, the growth rates in May are 7.3 per cent in primary goods, 2.5 per cent in capital goods, 2.5 per cent in intermediate goods, 6.9 per cent in infrastructure/ construction goods, 12.3 per cent in consumer durables and 2.3 per cent in consumer non-durables based on use-based classification, top three positive contributors are – primary goods, consumer durables and infrastructure/construction goods.
Dharmakirti Joshi, Chief Economist CRISIL, said that Consumer-oriented goods drove the rise in IIP. While consumer durables recorded the strongest growth in May among 6 major manufacturing categories, non-durables also rose after declining the previous month, he said.
However, infrastructure, construction and capital goods slowed, indicating some cooling of the investment momentum. Central government capital expenditure had slowed in May amid the elections, Joshi added.
“Going forward, industrial growth could be lifted by improving consumption, as rural demand catches up on the back of healthy agriculture.
Urban economy continues to be supported by robust credit growth, but is likely to cool off as rate hikes bite and services slow”, he said.
Overall, Crisil expects India’s GDP growth to moderate to 6.8 per cent this fiscal from a strong 8.2 per cent recorded previous year.
Sunil Kumar Sinha, Principal Economist, India Ratings and Research and Paras Jasrai, Senior Economic Analyst, India Ratings and Research, said that lacklustre manufacturing growth is a concern for stability of industrial recovery.
At the use-based classification level, the highest growth was registered by the consumer durables (12.3 per cent yoy, at a three-month high) which got a boost due to a favorable base effect and heatwave-led push in demand.
Consumer non-durable goods picked up to 2.3 per cent yoy in May from a contraction in the previous month, however, it continues to be in sharp contrast with the durable segment.
“The latest data corroborates Ind-Ra’s assertion of the persistence of divergence in consumption demand which is led by the upper income households.
This is worrisome, as such a consumption pattern would not allow the overall consumption demand to become broad-based,” Sinha and Jasrai said.
The capital goods grew at a tepid 2.5 per cent yoy (lowest since February 2024) in May 2024, signaling muted investment activity in the economy.