India’s industrial growth falls to 3.7% in June
India’s industrial output, as measured by the Index of Industrial Production (IIP), demonstrated a growth of 3.7 percent in the month of June. This data was officially released by the Ministry of Statistics and Programme Implementation on August 11. However, this growth rate of 3.7 percent marks a decline from previous months and falls short of both the consensus estimate of 5 percent and the growth rates observed in recent periods.
This latest industrial growth figure represents a three-month low, indicating a deceleration in the pace of industrial activity. The industrial output figures for May, initially reported as a growth rate of 5.2 percent, have now been revised upward to 5.3 percent. In comparison, June’s growth rate of 3.7 percent suggests a slowdown in the momentum of industrial production.
It’s important to note that in June 2022, the Indian industrial sector had witnessed a significantly higher growth rate of 12.6 percent. This robust growth rate in the corresponding month of the previous year serves as a point of reference for evaluating the current performance of the industrial sector. The year-on-year comparison highlights a substantial decline in growth, underscoring the challenges and fluctuations that the sector has experienced over this period.
The factors contributing to the observed decline in industrial growth could include a range of economic conditions, such as changes in consumer demand, supply chain disruptions, fluctuations in raw material prices, and macroeconomic trends. Additionally, the impact of global events, policy decisions, and local factors can all influence the performance of the industrial sector.
The data indicates that there is a need for ongoing monitoring and analysis of the industrial landscape in India to better understand the underlying dynamics affecting growth. Policymakers, economists, and businesses alike will likely pay close attention to these trends to inform their decisions and strategies moving forward.
During the first quarter of the fiscal year 2023-24, the Index of Industrial Production (IIP) registered a growth rate of 4.5 percent. This growth rate marked a significant decrease from the corresponding period of the previous year, April-June 2022, when the IIP had surged by 12.9 percent. The substantial variance between the two periods is attributed in part to a favorable base effect, meaning that the comparison was influenced by a low base in the previous year.
The base effect occurs when the growth rate of a given period is magnified or diminished due to the low or high base of the same period in the previous year. In the case of April-June 2022, the growth appeared higher due to the relatively lower industrial output during the same period in the previous year, making the year-on-year comparison more pronounced.
Turning the focus specifically to June 2023, the overall industrial growth was hindered by a slowdown in the increase of manufacturing output. Manufacturing output, a significant component of the IIP, recorded a year-on-year growth rate of 3.1 percent in June. This marked a decline from the previous month, May, when manufacturing output had experienced a more robust growth of 5.8 percent.
The manufacturing sector plays a crucial role in most economies and often serves as a key indicator of economic health. A slower growth rate in manufacturing output can be influenced by factors such as changes in consumer demand, disruptions in supply chains, fluctuations in raw material availability, and shifts in global economic conditions.
The combination of the overall lower growth rate in the first quarter of 2023-24 and the reduced growth in manufacturing output for June 2023 indicates a moderation in industrial activity compared to previous periods. This suggests that the industrial sector may be navigating through challenges and fluctuations, which could be influenced by a range of factors including both domestic and global dynamics.
Economists, policymakers, and industry stakeholders will likely closely analyze these trends to gain insights into the broader economic environment and to make informed decisions regarding policy, investment, and business strategies.
The manufacturing sector’s performance holds a disproportionately influential role in shaping the overall headline industrial growth figure. This is due to the fact that the manufacturing sector contributes significantly to the Index of Industrial Production (IIP), accounting for over three-fourths of its composition. Consequently, fluctuations in manufacturing activity can heavily impact the overall growth trajectory of the industrial sector.
In the context of recent trends, while the manufacturing output demonstrated a slower rate of growth, other sectors within the industrial landscape experienced different dynamics. Notably, the mining and electricity sectors exhibited a more rapid rate of growth. Specifically, in June, the mining output registered a substantial growth rate of 7.6 percent, marking an increase from the previous month’s growth rate of 6.4 percent. Likewise, electricity production showed an uptick with a growth rate of 4.2 percent in June, as opposed to the comparatively modest growth rate of 0.9 percent recorded in May.
The improved performance of the mining and electricity sectors can be attributed, in part, to the weather conditions during the month of June. The lower amount of rainfall and drier conditions prevalent during this period can facilitate increased mining activity. Reduced rainfall can lead to less waterlogged mining sites, allowing for greater ease of extraction and transportation of minerals and resources. Additionally, the drier weather may contribute to heightened electricity demand, potentially driving up electricity production to meet the needs of various sectors.
The interplay between weather patterns and industrial activity underscores the complex and interconnected nature of economic factors. Natural conditions, such as rainfall and weather, can significantly influence sectors reliant on resource extraction and energy production. This connection further highlights the need for comprehensive analysis and understanding when assessing industrial performance and its contributing factors.
Ultimately, the variation in growth rates among different industrial sectors and their correlation with external factors like weather conditions emphasizes the importance of a holistic approach to economic analysis, policy-making, and strategic decision-making by industries and businesses.
The release of the Index of Industrial Production (IIP) growth figures for June has led to disappointment among economic analysts and experts. Suman Chowdhury, who serves as the Chief Economist and Head of Research at Acuité Ratings & Research, expressed this sentiment, highlighting that the reported IIP growth rate fell short of expectations.
Chowdhury also noted a concerning trend within the manufacturing sector. Despite experiencing growth in the initial two months of the preceding quarter, the manufacturing sector was unable to sustain this positive trajectory. Specifically, the manufacturing output demonstrated a growth rate of only 3.1 percent in June. Moreover, this sector experienced a sequential contraction of nearly 1 percent, indicating a decline from the previous months. The inability to maintain growth momentum and the subsequent contraction underscore the challenges faced by the manufacturing industry during this period.
Rajani Sinha, the Chief Economist at CareEdge, provided additional insights into the manufacturing sector’s performance. Sinha observed that while the metals segment exhibited healthy growth, export-intensive categories such as textiles and wearing apparel continued to face pressure. This suggests that certain segments of the manufacturing sector were able to perform well, possibly due to favorable market conditions or demand, while others, particularly those reliant on exports, encountered difficulties. The challenges faced by export-driven categories could be influenced by factors such as global demand fluctuations, supply chain disruptions, and competitive pressures in international markets.
The commentary from these experts highlights the nuances and complexities within the industrial landscape. It underscores the need for a comprehensive understanding of various sub-sectors and their individual dynamics when analyzing overall industrial performance. The diverse experiences of different manufacturing segments further emphasize the impact of external factors, market conditions, and industry-specific challenges on overall growth trends.
This kind of expert analysis is essential for policymakers, investors, and businesses as they make decisions based on the evolving economic landscape. Insights from economists and researchers help to inform strategies, identify areas for improvement, and guide adjustments to policies and business operations to navigate through changing economic conditions.
The use-based classification of goods provides insights into the different sectors of industrial production and their performance. In June, there were notable shifts in various categories, with both positive and negative trends.
1. **Primary and Intermediate Goods**: The production of primary and intermediate goods experienced growth rates of 5.2 percent and 4.5 percent, respectively. This suggests an uptick in the manufacturing of goods that form the foundational components of various industries.
2. **Consumer Durables**: On the other hand, there was a significant decline in the output of consumer durables, which contracted by 6.9 percent in June. This decline followed a period of growth in May, indicating a reversal of the positive trend observed earlier.
3. **Capital Goods**: The output of capital goods, which are machinery and equipment used for production, increased by a modest 2.2 percent. However, this growth rate was notably lower than the 8.1 percent growth recorded in May.
4. **Consumer Non-Durables**: The production of consumer non-durables, which includes items like food, clothing, and other daily necessities, saw a minimal growth rate of 1.2 percent in June. This was a decline from the 8.4 percent growth posted in May.
5. **Infrastructure Goods**: Output in the infrastructure goods category demonstrated consistent growth, remaining at 11.3 percent in June, the same rate as in May.
Aditi Nayar, Chief Economist at ICRA, provided insights into these trends and their potential implications. Nayar pointed out that many high-frequency indicators showed improvement in July compared to June, indicating a potential rebound in economic activity. Despite some areas of concern, such as vehicle registrations and finished steel consumption, these positive trends led ICRA to anticipate an uptick in IIP growth for July. Nayar projected IIP growth to range between 4-6 percent in July, suggesting a potential improvement from the previous month.
Economic analysts like Nayar play a crucial role in interpreting data and providing informed forecasts. Their insights help businesses, policymakers, and investors understand the broader economic landscape and make informed decisions based on emerging trends and potential future developments.
