Industrial output growth rises to 5.2% in May

India’s industrial output rose to a three-month high of 5.2 per cent in May from 4.5 per cent in the previous month, led by a robust expansion in the mining sector even as manufacturing activities picked up pace.

Factory output, measured through the Index of Industrial Production (IIP), stood at 19.7 per cent in May 2022. So the expansion in May 2023 came despite the high base.

With 6.4 per cent year-on-year expansion, mining was the best performing sector during the month of May, as per data released by the Ministry of Statistics & Programme Implementation on Wednesday.

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“5.2 per cent growth in industrial production was supported by growth in capital goods and consumer durables in May 2023, indicating a healthy investment cycle in the economy,” said Vivek Rathi, Director Research, Knight Frank India.

Electricity output jumped by 5.7 per cent in May, compared with 20.7 per cent for May 2022. Manufacturing production increased by 0.9 per cent year-on-year during the month under review. If one takes the average data for the first two months of the current fiscal, the manufacturing sector has witnessed a contraction of 0.1 per cent.

The industrial output growth in May was better than the analyst forecasts. “IIP growth was a pleasant surprise for May given that we had forecast 4.5 per cent,” said Madan Sabnavis, chief economist at Bank of Baroda.

The improvement was broad-based across sectors. Infrastructure and construction goods continue to be the strongest contributor to growth, followed by capital goods and consumer non-durables. This essentially hints at the domestic economy being the key driver of industrial growth, said Dharmakirti Joshi, chief economist at CRISIL.

On the future outlook, Joshi noted that two factors can swing the industrial performance in the coming months – monsoon and global economic performance.

Monsoon’s performance will critically influence rural demand. While overall monsoon has turned normal, spatial distribution remains very uneven and kharif sowing lower on-year across most crops. The El Nino has set in as expected, whose timing and intensity will weigh on rain performance this year, he added.