Industrial production clocks modest rebound, up 3.1%

India’s industrial output returned to the positive trajectory with a moderate uptick of 3.1% in September, after recording the first contraction in 21 months this August, led by a 3.9% growth in manufacturing output even as electricity and mining sectors clocked a mere 0.5% and 0.2% rise, respectively.

The Index of Industrial Production (IIP) inched up 0.7% from August levels to touch 146.7, but this was still the second weakest output level since December 2023. The mining and manufacturing indices moved up mildly from August, indicating an rise in month-on-month production levels, but electricity generation fell 2.5% sequentially and was at its lowest since March this year.

The IIP had risen 6.4% in September 2023, so there were some base effects at work too. Output levels in India’s eight core sectors, which account for about 40% of the IIP, had slipped to a ten-month low in September, even as they grew a mild 2% year-on-year.

Unlike August, when 11 of 23 manufacturing segments contracted, just five industries reported a drop in production volumes compared to last September. However, computers and electronics, which was one of just five segments to clock a double-digit growth in August, slipped into a 1.3% contraction in September.

Industrial output has now grown at 4% through the first half of the year, compared to a 6.2% uptick between April and September 2023, with manufacturing (3.7%) and mining (4.2%) dragging down growth, even as electricity generation grew 6.1%, the same rate as last year.

Spliced by end-use, all six segments of factory output recorded positive growth, compared to just four segments in August, led by a 6.5% spike in consumer durables sales that analysts linked to a pre-festive season inventory stockpiling.

Consumer non-durables broke a four-month streak of contraction but grew just 2% in October. CareEdge Ratings chief economist Rajani Sinha said the performance of consumption-related segments warrants close monitoring amid signs of softening urban demand.

Primary goods also rebounded from a 2.6% contraction in August to rise 1.8% in September, but was marginally lower than August in absolute terms. Capital goods output growth improved to 2.8% from 0.5% in the previous month, with production rising a sharp 7.2% from August. 

Intermediate goods’ production grew 4.2%, while infrastructure and construction goods recorded a 3.3% rise over September 2023 levels, although both these segments’ actual output was moderately lower than August this year.

Crisil chief economist Dharmakirti Joshi reckoned that industrial activity may rise further in coming months with the festive season consumption demand boost and an uptick in rural demand after a healthy monsoon. 

“However, the impact of elevated borrowing costs will weigh heavy, especially in urban areas. This is evident from slowing bank credit growth in the past four months,” he noted.