Growth in India’s industrial production (IIP) inched up moderately to 3.8% YoY in Dec-23 from 2.4% in Nov-23. With this, IIP registered a growth of 5.8% YoY in Q3 FY24 – this marks a moderation from 7.8% expansion seen in Q2 FY24. The cumulative industrial output growth in the nine month period stands at a healthy 6.1% YoY.

A granular look:

• On sequential basis, IIP expanded by 7.4% MoM, better than the average expansion of 6.7% MoM usually seen in the month of December. Among the 25 sub sectors of IIP, 23 registered a sequential expansion while two saw a sequential contraction.
• Within manufacturing, the top 3 industries showing expansion in sequential activity were Furniture, Electrical equipment, and Fabricated metal products. The bottom 3 industries were Motor vehicles etc., Other transport equipment, and Beverages.
• On an annualized basis, the expansion in Dec-23 was led by Manufacturing, while Utilities and Mining sector activity reflected a Moderation over Nov-23.·
• On the use-based classification, barring Primary goods, annualised growth in all other sectors improved in Dec-23 vs. Nov-23. Notably, growth in Capital and Consumer goods swung from a contraction to an expansion.
  

Outlook

The mild improvement in industrial production in Dec-23 adds to the mixed picture derived from some of the other leading indicators – while Core Sector growth and the PMI-Manufacturing slipped to their respective 14-month and 18-month lows in Dec-23, annualized growth in automobile production (as per SIAM data) recorded an 18-month high in Dec-23 along with a moderate improvement recorded in GST E-way bill generation.

Looking ahead, the industrial landscape could continue to remain mixed. On the positive side, we note that:

• The IMF in its World Economic Outlook update in Jan-24 revised up the forecast for 2024 World GDP growth by 20 bps to 3.1%. This will make the expected global growth to remain unchanged in 2024 over 2023, thereby mitigating concerns over a slowdown.  
• The central government's capex that is on course to register a sharp jump to 3.2% of GDP in FY24 from 2.7% in FY23, is budgeted to increase further to a 20-year high of 3.4% in FY25.  

On the other hand, there could be some drag to industrial activity in FY25 from:

• Private consumption recovery has been somewhat sluggish. Lagged impact of higher interest rates along with regulatory tightening of unsecured lending could weigh on consumption activity further.
• Recent geopolitical disturbance in the Red Sea region could have a minor adverse effect (if the tension persists).

Overall, Industry GVA could moderate a tad from its estimated growth of 7.9% in FY24 on account of (i) gradual scale back of post Covid policy stimulus, (ii) swing in input price inflation from negative to positive territory, and (iii) geopolitical uncertainty.

Says Suman Chowdhury, Chief Economist and Head- Research, Acuité Ratings & Research “Industrial output for Dec-23 has surprised slightly on the upside with annualized growth of 3.8% YoY and a solid sequential output growth of 7.4% MoM. Both the mining and the manufacturing sectors were in a higher gear while power generation growth has been quite modest at 1.2% YoY. After a lacklustre sequential outturn in Oct and Nov, the manufacturing output saw a significant sequential recovery of 8.2%. Consumer goods production improved after a weak performance in Nov-23.

On a cumulative basis, industrial output growth in the Apr-Dec’23 period stood at a healthy 6.1%; while we expect that figure to moderate slightly by the year-end, @ 6.0% it will still be the highest IIP growth print in the last ten years excluding FY22, the year after Covid. Our GDP growth forecasts for FY24 and FY25 are relatively conservative at 6.8% and 6.3% respectively as compared to that of RBI which has pegged it at 7.3% and 7.0% respectively, factoring in a moderation in the growth momentum including industrial activity over the next few quarters.”

Table 1: Annualized growth in IIP and its key components

Chart 1: Post COVID industrial recovery has been uneven

Chart 2: Central government’s capex spend is slated to touch a 20-year high in FY25