Manufacturing pushes industrial production growth to 4.8% in July

Industrial production growth increased marginally to 4.8% in July from 4.7% recorded in the previous month, led by the manufacturing sector even as expansion in the other two sectors, electricity and mining, decelerated, as per official data released on Thursday.

The cumulative growth in industrial output as measured by the Index of Industrial Production (IIP) stood at 5.2% in the April-July period of the current financial year, marginally higher than 5.1% expansion registered in the corresponding period of 2023-24.

Manufacturing sector, which accounts for 77.63% weight in the IIP, posted an accelerated growth of 4.6% in July from 3.2% in the previous month.

However, growth in mining and electricity fell. Mining output growth slumped to 3.7% in July from 10.3% recorded in the previous month. Electricity production growth declined from 8.6% in June to 7.9% in July.

Within the manufacturing sector, top three positive contributors for the month of July 2024 were: manufacture of basic metals (6.4%), manufacture of coke and refined petroleum products (6.9%), and manufacture of electrical equipment (28.3%).

Capital goods witnessed the sharpest rise during the month under review, indicating good investment momentum. The annual growth in capital goods jumped to 12% in July. Intermediate goods posted a growth of 6.8%.

However, four of the six use-based segments witnessed a deterioration in their performance in July 2024 vis-à-vis June 2024, signalling that economic activity remains fairly uneven, said Aditi Nayar, Chief Economist, ICRA.

Dharmakirti Joshi, Chief Economist, CRISIL, said the IIP hinted at weakness in the production of consumption-related goods, with consumer durables growth slowing and non-durables declining at a greater pace.

However, IIP data has been at odds with gross domestic product (GDP) data recently, as the latter showed a sharp rise in private consumption growth. "This could be because of consumption demand rising more for services than goods. It is also possible some of the domestic demand is being met by imported goods rather than domestic production," Joshi said.

Analysts expect that the industrial production growth would decline sharply in August due to contraction in electricity and mining output owing to excess rains, as well as an adverse base effect. IIP growth in August 2023 stood at 10.9% vs 6.2% in July 2023.

“The swift progress of monsoon rainfall in the country has resulted in some slack in the electricity generation due to lower power demand. The electricity demand and coal production declined 6.5% and 7.5% respectively in August 2024, indicative of slowdown in primary goods,” said Paras Jasrai, Senior Economic Analyst at India Ratings and Research.

Other high frequency indicators such as steel production and petroleum consumption also point to a decline in industrial growth in August 2024, Jasrai added.