Industrial output growth slumps to 1.1% in March

Industrial output growth slumped to 1.1 per cent in March from 5.6 per cent recorded in the previous month dragged by decline in electricity production and near stagnation in manufacturing activities, the National Statistical Office (NSO) data showed.

Power output declined by 1.6 per cent in March on a year-on-year basis while manufacturing sector registered a sluggish 0.5 per cent expansion. Mining production jumped by 6.8 per cent during the month under review.

The March industrial production data has come sluggish despite low base. Factory output measured in terms of the Index of Industrial Production (IIP) had posted a growth of 2.2 per cent in March 2022.

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For the whole fiscal 2022-23, the industrial production growth slowed to 5.1 per cent as against 11.4 per cent recorded in the financial year 2021-22.

Manufacturing, which has 77.63 per cent weight in IIP, posted a growth of 4.5 per cent in 2022-23. Manufacturing output growth slumped to 0.5 per cent in March from 5.6 per cent recorded in the previous month on a year-on-year basis.

“Industrial growth will likely continue facing headwinds from falling exports and moderating domestic demand,” said Dharmakirti Joshi, chief economist at CRISIL.

“External demand is expected to be a bigger drag as western advanced economies face a sharper tightening in financial conditions,” Joshi added.

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Within manufacturing, sharpest fall was seen in consumer durables (-8.4 per cent vs -4.1 per cent), followed by consumer non-durables (-3.1 per cent vs 12.1 per cent). Consumer durables declined consistently for the past 4 months, largely indicating hit from falling exports, and some impact of rising interest rates on domestic demand.

Support from infrastructure activity also seemed to wane towards the end of the fiscal, as reflected in IIP for infrastructure and construction goods slowing for fourth consecutive month (5.4 per cent vs 8.4 per cent). This should reverse as central government restarts capex push from new fiscal.

However, the growth in capital and infrastructure/construction output continues to remain on the upside, indicating at an investment upcycle in the economy, said Vivek Rathi, Director Research, Knight Frank India.

“The signals of recovery in domestic consumption is still uneven as the output of consumer durable goods is yet to pick up,” said Rathi.