Growth in India’s industrial production clocked 5.2% YoY in Nov-24, the highest in six months, compared to 3.7% (revised up from 3.5% reported earlier) in Oct-24. The headline growth print exceeded market consensus estimate of ~4.1%. IIP growth has been supported by the favourable base, given that it had grown only by 2.5% YoY in Nov’2023.

Key highlights 

• On a sequential basis, IIP declined by -1.2% MoM in Nov-24. However, this is better in comparison with the series median decline of 3.1% usually seen in the month of November. Despite a sequential decline in the index, an up-tick in the annualized headline growth indicates support from a favorable statistical base.
  1. Among the 25 sub sectors of IIP, 4 registered a sequential expansion while 21 saw a sequential contraction. 
• Sectoral classification:
  1. While the improvement in annualized growth was supported by all the three sectors, the Manufacturing sector recorded the fastest pace of expansion at 5.8% YoY, the best in eight months. 
  2. Within the manufacturing industries, the top three performers on an annualized basis were Furniture, Electrical equipment, and Fabricated metal products. On the other hand, the three worst performing sectors were Miscellaneous manufacturing items, Printing and reproduction of recorded media, and Leather & related products. 
• On use-based classification, all the major components except Consumer non-durables showed an improvement in annualized growth performance. Meanwhile, Consumer durables and Infrastructure & construction goods clocked double digit expansion. Capital goods notched up a growth of 9.0%, the highest since Aug’2024, raising hopes of a pickup in investments.  

Outlook

With data for Nov-24 now available, we look at the cumulative performance of the IIP during the seasonally busy festive season, which usually spans between Sep-Nov every year. In FY25, IIP clocked 4.0% annualized expansion during Sep-Nov months – this is marginally better than the series median expansion of 3.9% seen during the busy festive season. Hence, it appears that despite the build-up of some domestic concerns over the economy’s growth momentum, the industrial sector managed to grow in line with its usual trend around the usual festive season in India.

To be sure, this is not entirely unexpected. As the impact of weather related disruptions started to fade and central government’s expenditure picked up (post the drop in the pace of disbursals on account of election and government formation), the transient headwinds that weighed upon GDP growth in Q2 FY25 appear to have dissipated. Expectation of  a further uptick in rural demand (supported by cash transfer schemes announced by several state governments and monsoon led cyclical recovery) further provides comfort.

Having said, concerns continue to persist. Lagged impact of policy tightening (esp. monetary and regulatory) along with feeble job growth is constraining urban demand. In addition, global uncertainty has increased amidst expectations of US president-elect Trump upending the global trade order with indiscriminate use of tariffs (Trump has indicated that he will impose 10-60% tariffs on countries with which US runs a trade deficit). We would wait for his official inauguration in Jan’2025 and look for initial signals on the US trade policy. The response by member trading partners in the form of trade negotiations and/or retaliatory actions would determine the net impact on global trade. Till then, needless to say, the export-oriented industries within India’s IIP will be under a spotlight.

From GDP perspective, post the sharp negative surprise in Q2 FY25 data, we revised lower our full year growth estimate to 6.4%. This is in line with the NSO’s First Advance Estimate of FY25 GDP growth. From industrial activity perspective, the FAE indicates a moderate improvement in Industry GVA growth from 6.0% in H1 FY25 to 6.5% in H2. Volume based early signals received so far (IIP and Core Sector performance, E-way bill generation) seem to corroborate this expectation.

Says Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research “On a cumulative basis, IIP has grown by 4.1% in the Apr-Nov period. We expect IIP growth to pick up in Q4FY25 on the back of an improvement in consumer demand, supported by the wedding season and the kharif harvest. Further, government spending particularly on capital expenditure is also likely to see a rapid uptick over the next few months. Nevertheless, the annualized growth in IIP for FY25 is set to slow down to around 4.5% given the weaker growth in H1. On the slightly longer horizon, new government policies may support manufacturing investments in the coming quarters that will translate to higher IIP growth over the next few years.”

Table 1: Annualized growth in IIP and its key components

Chart 1: IIP’s festive season performance in 2024 is in line with the series trend

Chart 2: After the initial loss of pace, central government’s expenditure has picked up in last three months