Industrial production growth falls to 5-month low of 4.2% in June

New Delhi: Industrial production growth declined to a 5-month low of 4.2% in June as a slowdown in the government capex amidst elections and lackluster rural demands dampened manufacturing growth, official data showed on Monday.

The National Statistical Office revised upward the industrial production data for May 6.2% from 5.9% announced earlier. The factory output, measured in terms of the Index of Industrial Production (IIP), had posted a growth of 4% in June 2023. The June 2024 print is the slowest since January when it was also recorded 4.2%.

There was a sharp deceleration in the growth of the manufacturing sector, which accounts for 77.63% weight in the IIP. The manufacturing sector growth slipped to 2.6% in June from 5% recorded in the previous month.

While all major sectors slowed, consumer non-durables posted the weakest growth, declining 1.4%. “This suggests a recovery in consumption is yet to gain ground. The slowdown in consumer durables also hints at urban demand shedding buoyancy,” said Dharmakirti Joshi, Chief Economist, CRISIL.

Infrastructure and construction goods, which were the key driver of IIP growth last fiscal, has been slowing for the past two months following lower capital expenditure by the Centre and states in the first quarter. This coupled with slower growth in capital goods suggest the overall investment momentum cooled in the first quarter of this fiscal, Joshi added.

Analysts said a poor show of industrial production may drag down the overall GDP numbers. Average annual IIP growth in the April-June quarter of the current financial year stood at 5.2%.

"With a slowdown in Government capex amidst the elections and lacklustre rural demand as well, we anticipate a moderation in the GDP growth print for Q1 FY2025," said Aditi Nayar, Chief Economist at ICRA.

“Below-par manufacturing growth is worrisome for the stability of industrial recovery,” said Paras Jasrai, Senior Economic Analyst at India Ratings and Research.

While the manufacturing sector growth declined, there was acceleration in the other two segments – mining and electricity. Growth in mining production jumped to 10.3% in June from 6.6% in the previous month, while electricity output increased by 8.6% year-on-year during the month under review.

“The impact of general elections was visible in IIP data. The capital goods grew at a meagre 2.4% yoy (lowest since February 2024) in June 2024, signaling muted investment activity in the economy,” said Jasrai.  

Even the growth in infrastructure goods declined to a seven-month low of 4.4% yoy in June 2024 due to a drop in government capex. The capex of the union and the states (21 state governments) declined 52.3% yoy to Rs 0.61 trillion during June 2024 due to general elections.

Only seven out of 23 industries witnessed a higher growth than the overall industrial output growth in June 2024 indicative of the weakness in the manufacturing sector.