Growth in India’s industrial production moderated to 3.8% YoY in Jan-24 from 4.2% (revised higher from 3.8% reported earlier) in Dec-23. This is close to the market consensus expectation of ~4.1%.   

A granular look:

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• On a sequential basis, IIP expanded by 0.6% MoM in Jan-24. This is marginally better than the median monthly increase of 0.4% seen in the month of January. Among the 25 sub sectors of IIP, 16 registered a sequential expansion while 9 saw a sequential contraction. 
• Within manufacturing, the top 3 industries showing expansion in annualized activity were Other transport equipment, Fabricated metal products, and Motor vehicles, trailers, etc. The bottom 3 industries were Computer, electronics, & optical products, Tobacco products, and Other manufacturing products.
• On an annualized basis, the expansion in Jan-24 was led by the Mining and Utilities sector. From use-based classification, momentum was spearheaded by Consumer durables (which incidentally recorded a double-digit expansion), followed by a moderate expansion seen in case of Intermediate goods, Infrastructure & construction goods, and Capital goods. Noticeably, consumer non-durables contracted by 0.3% YoY, posting their second negative annualized change in last 3-months.

Outlook

While the moderation in Jan-24 IIP is broadly in sync with the signal derived from the Core Infrastructure Index, other proxy indicators like the PMI Manufacturing, GST E-Way Bill generation, automobile production (as per SIAM), and industrial fuel consumption point towards a marginal improvement.

Having said so, the consolidated signal from IIP remains mixed. The post Covid recovery continues to be strongly led by investment-oriented production, with recovery in consumption-oriented production appearing subdued.

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

• Pace of disbursal of public capex could be somewhat lower in Q4 FY24 keeping in mind the revised budget estimates (which saw a cut back in capex of Rs 500 bn in the interim budget). Driven by the need for aggressive fiscal consolidation, It could further moderate in FY25. Hopefully, this could get offset if private investments pick-up post the general elections in Q1 FY25.
• Consumption-oriented activity remains sluggish. However, the recent cut in the price of LPG by Rs 100 could potentially aid disposable incomes. In addition, the emerging likelihood of normalisation of El Nino conditions by May-24, augurs well for 2024 southwest monsoon, which in turn could help boost cyclical recovery in rural consumption. Nevertheless, headwinds from lagged impact of tight monetary policy and regulatory measures on unsecured lending likely could weigh on urban consumption. 
• While global risks persist, esp. on the geopolitical front, recent upgrades to growth outlook offer respite. As per the IMF, World GDP growth is projected to stay unchanged at 3.1% in 2024 (same as 2023), before posting a mild recovery to 3.2% in 2025.

For FY25, we expect GDP growth to moderate to 6.7% from NSO’s revised growth estimate of 7.6% in FY24. However, bulk of the moderation could be statistical (related to normalization impact of net indirect taxes) along with the reversal of benefit to the industrial value addition from deflation in input prices (we expect WPI inflation to increase to 3% in FY25 from an estimated level of -0.7% in FY24).

Says Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research Ltd, “There has been a slight moderation in IIP growth in Jan-24 to 3.8% as compared to 4.2% in Dec-23. Given the less favourable base factor, this was in line with our expectations. The cumulative growth in industrial output in the ten month Apr-Jan’24 period remains healthy at 5.9%. While manufacturing output slowed down somewhat to 3.2% YoY during the month, the annualized growth is expected to be around 5.5% for FY24.

Sequentially, the output figures look encouraging with overall IIP MoM at 0.6%, being largely driven by a step up in mining activity (mainly coal) and higher power demand. While manufacturing has the dominant share in IIP, the solid growth in mining and electricity is providing the momentum to IIP. In terms of use based categories, infrastructure and capital goods have notched up output growth of 10.0% and 6.9% in the current year (Apr-Jan), driven by the continuing public capital investments. As in the previous months, consumer goods output remains an outlier with 3.7% YoY growth in Jan-24 and 3.6% YoY in the Apr-Jan period; consumer durables remain a laggard in that category compared to FMCG.

Overall, FY24 is likely to be one of the best years for industrial activity with IIP growth forecast at 5.8% YoY on the back of 5.3% growth in the previous year. This will be the highest growth print for IIP over the last ten years excluding FY22, the year just after the outbreak of Covid. For FY25, we expect industrial growth to moderate to 4.5%-5.5%.” 

Table 1: Annualized growth in IIP and its key components

Chart 1: Post Covid recovery for investment oriented industrial activity visibly higher