NEW DELHI: India’s industrial growth dropped more than expected in September to 5.8% from a 14-month high of 10.3% in the preceding month, hit by an unfavorable base effect magnified by a shift in the festival calendar. Excess rainfall in September also disrupted output, impacting growth.
Economists expect the Index of Industrial Production (IIP) to recover in October with festive season-related output and inventory lifting growth. The peak festive season in 2022 had been in October. That had shifted much of the pre-festive production to September. This year, Diwali is on November 12. The consensus expectation for September IIP was 7%.
“The (year-on-year) performance of a majority of the available high-frequency indicators improved in October 2023, relative to September 2023,” said Aditi Nayar, chief economist, ICRA, penciling in 7-10% IIP growth in October.
The government’s revenue collection from goods and services tax (GST) rose 13% in October, its fastest pace in 10 months, touching ₹1.72 lakh crore, supporting the call.
Overall passenger vehicle dispatches were up 16% in October, according to data released by the Society of Indian Automobile Manufacturers (SIAM) Friday.
“The high-frequency indicators such as coal, power demand, steel and e-way bills grew in the range of 11-30% y-o-y, pointing to a continued progression of economic activity in October 2023,” said Ind-Ra economists Paras Jasrai and Sunil K Sinha. “This, along with the seasonal push owing to festive demand and a favorable base effect, would keep the IIP growth around 10% in October 2023.”
IIP is up 6% in the April-September period, with the manufacturing sector registering 5.7% growth.
“This does indicate steady growth for the year and, considering that things should improve or remain stable in the next few months,” said Madan Sabnavis, chief economist, Bank of Baroda. “Industry appears to be on the right path provided consumption recovers.”
All three major sectors of the index registered lower growth in September. While electricity generation growth eased to 9.9% in September from 15.3% in the previous month, mining slowed from 12.3% to 11.5%.
Manufacturing saw the sharpest drop with growth slowing to 4.5% in September from 9.3% in the preceding month.
“While the moderation was broad-based across all sub-sectors and use-based categories, the performance of consumer goods was especially tepid at +1.0% and +2.7%, respectively, for durables and non-durables, resulting in the manufacturing sector’s performance trailing that of mining and electricity in September 2023,” said Nayar.
Sequentially, there was a decline across all three categories as well, with manufacturing easing 2% and electricity declining 6.6%.
“Encouragingly, output in the textiles sector rose in (year-on-year) terms for the third month in a row, similar to the improvement in corresponding exports,” said Rahul Bajoria, MD and head of EM Asia (ex-China) economics, Barclays.
Capital goods and consumer goods were the only industries to avert a sequential decline in September.
“Both consumer durables and capital goods grew sequentially (in contrast with other sectors and the headline which shrank month-on-month), though it remains to be seen if the trend will sustain,” Bajoria said.
Consumer non-durables declined 3.5% sequentially but registered a 2.7% rise annually.
“Rural demand has to be watched closely as the kharif crop could be sub-optimal,” said Sabnavis.
Source: The Economic Times