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Jul-22 IIP: Sharp drop in print amid erosion of favorable base

15 Sep 2022



  • Growth print in India’s industrial index of production (IIP) dropped sharply to 2.4% YoY in Jul-22 from 12.7% in Jun-22
  • While unfavourable statistical base in Jul-22 abetted in easing of the headline growth print, the overall impact got exacerbated by a sequential contraction in momentum – the index grew by -2.7% MoM, worse than the pre pandemic historical average expansion of 0.1% seen in the month of July.
  • On FYTD basis, IIP growth reveals two clear trends: (i) investment related production consistently outpacing consumption oriented production, and (ii) existence of strong urban demand even as rural demand stays anemic.
  • Going forward, sequential momentum could benefit from improvement in capacity utilization to pre pandemic levels, government’s front loading of capex, moderation in international commodity prices, and the incoming festive-heavy season in H2 FY23.
  • However, support from external demand is expected to wane in the coming quarters on account of accelerated pace of monetary tightening by key central banks, persistence of elevated geopolitical uncertainty, and lingering of Covid risks in few countries.
  • While we forecast FY23 GDP growth at 7.2%, downside risks needs to be watched closely.

Growth in India’s industrial production decelerated sharply to 2.4% YoY in Jul-22 from 12.7% (revised upwards from 12.3%) in Jun-22.While unfavourable statistical base in Jul-22 abetted in easing of the headline growth print, the overall impact got exacerbated by a sequential contraction in momentum – theindexgrew by -2.7% MoM, worse than the pre-pandemic historical average expansion of 0.1% seen in the month of July.

A deep dive into internals

  • Within the 23 sub-sectors of manufacturing sector, 10 industries registered a sequential expansion while 13 saw a sequential contraction.

  • The top 3 manufacturing sub-sectors showing expansion in sequential activity were Electrical Equipment (+6.2% MoM), Leather and Related Products (+4.9% MoM), and Basic Metals (+3.6% MoM).

  • The greatest sequential drag emanated from Tobacco Products (-36.0% MoM), Computer, Electronic & Optical Products (-22.5% MoM), and Wearing Apparel (-14.3% MoM).

  • On sectoral front, mining and electricity contracted sequentially amidst the seasonal impact coming from the onset of monsoon. Manufacturing sub-sector was the lone accelerator, clocking an expansion of 1.3%MoM.
  • Similarly, the use-based side was sobering as well. Barring a sequential expansion in Intermediate Goods, all other sub-categories registered a sequential contraction in production activity.

  • On annualised basis, all subcategories of IIP registered a deceleration in Jul-22 over the previous month. However, it is disheartening to note that Mining (on use-based side) and Consumer Non-Durables (on sectoral side) posted a negative annualized print.


Post the substantial downward surprise in Q1 FY23 GDP data, negative surprise in real activity data continues to persist in early part of Q2 (market consensus for Jul-22 IIP growth data was placed between 4.0-4.5% vs. the actual outturn of 2.4%).

While the loss of momentum in IIP is broadly in line with that of exports, core infrastructure index, fuel consumption, and e-way bill generation in Jul-22, the overall weakness in industrial production is somewhat a concern as it is not consistent with survey-based indicators like the PMI-Manufacturing Index that continues to show healthy traction.

Within the IIP basket, there is a stark divide on two fronts:

  • Investment oriented production, captured by Capital Goods and Infrastructure & Construction Goods, continues to remain relatively healthy (at 12.5% YoY growth during Apr-Jul FY23) amidst government’s capex push. On the other hand, consumption oriented production, captured by Consumer Goods, has been weaker in comparison (at 7.4% YoY growth during Apr-Jul FY23) amidst uneven demand recovery.

  • Within the consumption basket, there is evidence of a divide between urban and rural consumption. Recovery in urban consumption continues to power ahead (captured by 19.6% YoY growth in Consumer Durables during Apr-Jul FY23) even as rural consumption paints a sombre picture (captured by 0.3% YoY growth in Consumer Non-Durables during Apr-Jul FY23). Weakness in rural demand can be associated with elevated rural CPI inflation, sizeable run-up in agri-input costs and an uneven distribution of rainfall more recently.

At the same time, there are reasons to be hopeful of industrial activity gaining some sequential traction:

  • Strong improvement in manufacturing capacity utilization to 75.3% in Q4 FY22 (above its long-term average of 73.2%) juxtaposed with the 62.5% YoY growth in central government capex during Apr-Jul FY23 bodes well for future activity.
  • The onset of festive heavy season along with lingering pent-up demand is likely to buoy industrial activity in H2 FY23.
  • Moderation in international commodity prices (the Reuters CRB Commodity Index is lower by 9-10% since its peak in Jun-22) would help in abating the input price pressures to some extent.

Overall, we maintain our FY23 GDP growth estimate at 7.2%. However, the potential emergence of downside risks on account of the anticipated global growth slowdown, need to be under close watch.  


Table 1: IIP growth at a glance