India’s industrial production expanded by 5.0% in Apr-24, in line with expectations. The pace was, however, lower than last month’s upwardly revised growth of 5.4% (revised up from 4.9%).

 A granular look:

• On sequential basis, IIP declined by 7.6%MoM. This is relatively better compared to the average monthly decline of 11.0% seen in the month of April historically. Typically, the index records a seasonal contraction at the start of the fiscal year, unwinding some of the year-end push seen in March. 
• Among the 25 sub sectors of IIP, only 3 registered a sequential expansion while 22 saw a sequential contraction. 
• On annualised basis, growth was led by Mining and Utilities sub-sectors, both fared better than Mar-24. Manufacturing on the other hand, saw growth slip to a 3-month low of 3.9% in Apr-24 from 5.8% in Mar-24. 
• Within the manufacturing industries, the top three performers on an annualized basis were Furniture (38.4%YoY), Other transport equipment (17.4%YoY), and Wearing apparel (12.6%YoY). On the other hand, the bottom three performing sectors were Food products (-12.7%YoY), Tobacco products (-8.9%YoY), and Leather products (-8.6%YoY). 
• On the use-based side, annualized growth was led by Consumer Durables, Infrastructure & Construction Goods, and Primary Goods. In contrast, Consumer Non-durables posted a mild contraction (-2.4%)

Outlook

After recording best back-to-back years of growth over FY23-24, IIP growth has commenced FY25 on a positive note. Most high frequency indicators had pointed towards growth momentum continuing into Apr-24.

• GST collections had soared to a record high of Rs 2.1 tn in Apr-24, compared to Rs 1.8 tn in Mar-24
• Core sectors growth improved marginally to 6.2%YoY in Apr-24 from 6.0% in Mar-24
• While PMI manufacturing index slipped to 58.8 in Apr-24 from 59.1 in Mar-24, it continues to remain well above last 12-m average of 57.2

Looking beyond the resilience in headline IIP, growth remains somewhat uneven - led by capital intensive or infra oriented sectors, while consumption-oriented sectors continue to remain on a weaker footing.

Going forward, the following macroeconomic trends would determine the trajectory of industrial activity in FY25: 

• Anticipated uptick in consumption, led by rural demand amidst continued fiscal support, recent increase in rural agri wages at a faster clip as well as expectation of a surplus monsoon in 2024. 
• Continued support from public capex. Higher than budgeted RBI dividend (Rs 2.11 tn) is likely to back government’s commitment towards infrastructure development, even as it remains on track to achieve a reasonable fiscal consolidation. 
• Even as geopolitical risks persist, recent upgrades to global growth outlook offers respite. The IMF projects World GDP growth to stay unchanged at 3.2% in 2024 and 2025 (same as in 2023).

We believe IIP growth (i.e., volume based) could remain on a moderate turf hereon on account of the above-mentioned factors. Having said, GVA in industry could be lower amidst the likely switch in input price inflation from a contraction in FY24 (WPI inflation average: -0.7%) to positive (at 3.0%) in FY25.

Says Suman Chowdhury, Chief Economist and Head – Research “IIP data for Apr-24 indicates a healthy momentum in domestic industrial activity after a strong performance in FY24. While there has been a relatively muted performance of the manufacturing sector in April, the mining and the electricity recorded solid annualized growth. The output trends of the latter segments are correlated as higher demand for electricity in the summer months also leads to higher demand for coal.

In terms of use based categories, infrastructure goods continue to notch up a robust growth of 8.0% YoY, driven by the increased public capital investments. Consumer goods output has remained a relative outlier with a muted 2.1% YoY growth in Apr-24; while there is an expectation of a recovery in consumer demand, non-durable consumer goods (FMCG) output has contracted by 2.4%.”  

Table 1: Annualized growth in IIP and its key components

Chart 1: GST collections soared to a record high in Apr-24