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Feb-23 IIP: Domestic Resilience Vs Global Headwinds

14 Apr 2023



  • India’s industrial activity edged up to 5.6% YoY in Feb-23 on account of favorable base effect, marginally beating market consensus (Refinitiv consensus: 5.1%), from 5.5% in Jan-23.

  • Sequential momentum was relatively weak with IIP index clocking 5.6% MoM contraction, partly expected due to the shorter month but worse than the pre-Covid average sequential moderation of 4.9% usually seen in the month of February.

  • The lower sequential momentum was driven by lingering weakness in manufacturing exports, subdued recovery in the pace of private capex, moderating urban consumption as reflected by uninspiring performance of high frequency lead indicators for Feb-23.

  • For FY24, weakening of global growth impulses due to tightening of financial conditions, continuing geopolitical uncertainty along with possibility of El Nino remain some known and unknown downside risks to growth.

  • In contrast, we expect continued support to industrial activity arising from government’s persistent focus on capex spending along with ongoing recovery in rural demand.

  • Overall, we maintain our GDP growth forecast of 6.0% in FY24.

India’s IIP rose mildly to 5.6% YoY in Feb-23 from 5.5% YoY (revised up from 5.2% reported earlier) in Jan-23. The headline print beat market consensus, pegged at 5.1%.

A granular look:

  • Sequential momentum was relatively weak with IIP index clocking 5.6% MoM contraction in Feb-23, worse than the pre-Covid average sequential moderation of 4.9% usually seen in the month of February. Given the shorter duration of the month, the sequential contraction, however, may not be completely conclusive on the industrial growth momentum.

  • As per sectoral classification, the moderation was led by Electricity (-6.8% MoM) and Manufacturing (-5.5% MoM).

  • Within the 23 sub-sectors of manufacturing, 17 registered a sequential contraction while only 6 saw a sequential expansion in Feb-23, underscoring the breadth of weakness of manufacturing activity. The top 3 industries showing expansion in sequential activity were Wearing Apparel (+7.3% MoM), Fabricated Metal Products ex Machinery and Equipment (+3.8% MoM), and Wood Products (+3.6% MoM). The bottom 3 industries in terms of sequential activity contraction were Tobacco Products (-15.8% MoM), Paper Products (-11.4% MoM), and Basic Metals (-8.3% MoM).

  • On use-based classification, Feb-23 saw a sharp sequential contraction in all 5 sub-sectors. The contraction was led by production of Intermediate Goods (-7.2% MoM), Primary goods (-6.6% MoM), and Infra & Construction Goods along with Consumer Non-Durables (-6.0% MoM for both).

  • In annualized terms, production of consumer non-durables remained in positive territory for the fourth consecutive month and rose to a 22-month high of 12.1% YoY in Feb-23, reflecting some traction in rural recovery.
  • On the other hand, production of Consumer durables remained in contraction for the third consecutive month (-4.0% YoY in Feb-23).


While a favourable base effect pushed annualised IIP growth higher in Feb-23, the sequential contraction reflects a combination of lower number of working days in the month, lingering weakness in manufacturing exports and subdued recovery in the pace of private capex. In addition, global growth is set to slow by a somewhat higher degree, as indicated by the IMF in its latest update to the World Economic Outlook report, which has pared its world GDP growth forecast for 2023 and 2024 by 10 bps each to 2.8% and 3.4% respectively. IMF has also revised the growth forecast for India to 5.9% for FY24.

The continued contraction in consumer durables production also underscores the waning of pent-up demand and moderating urban consumption, perhaps feeling the pinch of higher interest rates. The weakness in industrial activity, on a sequential basis, in Feb-23 was also visible from the uninspiring performance of high frequency lead indicators like PMI, Core output and E-Way Bills.

Having said so, we expect continued support from central government’s consistent focus on pushing capex and recovery in rural demand, as seen in improvements in tractor sales accompanied by moderation in rural CPI to a 15-month low of 5.51% YoY in Mar-23. However, the possibility of El Nino conditions likely evolving during the later summer months needs to be continually monitored. In addition, the recent rally in crude oil prices following the surprise announcement of a cut in product by OPEC+  if were to sustain or see further upside, could dent growth. Taking these factors into account, we maintain our GDP growth forecast of 6.0% in FY24.

Says Suman Chowdhury, Chief Analytical Officer “There has been a sequential drop in industrial output in Feb-23 across all categories largely due to the shorter duration of the month. On a YoY basis, the mining sector has seen some underperformance possibly due to the sharp drop in iron ore exports to China in the previous fiscal. While the growth in the manufacturing sector has been steady at 5.3% YoY despite the global headwinds, the power sector has consistently seen a high single digit growth through the year (8.2% YoY in Feb-23). For the eleven months of FY23, the overall IIP has grown by 5.5% with the power sector at 10.0% YoY. Higher levels of electrification, higher power demand from the residential segment and better availability of thermal grade coal have been driving the growth in power output over the last one year. The industries within the manufacturing sector that are yet to witness a meaningful recovery after the pandemic include textile, apparels, leather goods, electronic products and electrical equipment, most of which have been adversely affected by the slowdown in exports. One of the encouraging trends in the IIP has been the gradual rise in the output in the capital goods sector which has grown by 13.4% in the Apr-Feb’23 period. On the other hand, production of both consumer durables and non-durables that grew by 1.5% and 0.8% respectively, still continue to reflect the fragility in rural demand albeit an improving trend is observed. Given the resilience of domestic demand partly offset by the weakness in global demand, we however, expect IIP to average a growth of 4%-5% in FY24.”



Table 1: IIP growth at a glance

Chart 1: Barring consumer durables & Intermediate goods, all other sectors are above their respective pre pandemic levels