A granular look at Mar-24 data:

• On sequential basis, IIP rose by 8.2% MoM. This is lower than the median monthly increase of 11.1% seen in the month of March, which typically tends to exhibit strong year-end seasonal momentum. Among the 25 sub sectors of IIP, 23 registered a sequential expansion while 2 saw a sequential contraction. 
• Within manufacturing, the top 3 industries showing expansion in annualized activity were Furniture, Transport equipment, and Fabricated metal products. The bottom 3 industries were Tobacco products, Leather, and Food products.
• Sectoral Classification: On an annualized basis, the expansion in Mar-24 was led by the Utilities and the Manufacturing sectors.
• Use-based Classification: On an annualized basis, growth in Mar-24 was led by Consumer durables (aided by a strong favorable statistical base effect), followed by a heathy expansion seen in case of Infrastructure & construction goods and Intermediate goods.

Outlook

Moderation in Mar-24 IIP growth is broadly in sync with the signals derived from some of the leading indicators like the Core Infrastructure Index, GST E-Way Bill generation, automobile production (as per SIAM), and fuel consumption. 

Notwithstanding the moderation in Mar-24 IIP growth, the underlying trend momentum remains healthy. Notably, the post Covid recovery is marked by a higher annualized median growth of 4.6% (accompanied by unevenness in growth drivers and volatility in monthly performance) compared to the pre Covid phase annualized median growth of 3.7%. This has resulted in IIP registering a healthy growth performance of 5.8% for FY24 - barring the Covid led distortion in the data series in FY21 and FY22, this is the highest growth in industrial output in the last eleven years.

Going forward, expectation of a supportive monsoon season (as per the IMD’s preliminary forecast, India is likely to receive 6% surplus rainfall in the upcoming south-west monsoon season) coupled with a steady global demand backdrop (the IMF expects World GDP growth to remain unchanged at 3.2% over 2023-2025) would provide traction to IIP. 

At the same time, factors like lagged impact of domestic policy (monetary, liquidity, regulatory, and fiscal) tightening along with higher input costs would weigh.

For FY24, we continue to expect ~20 bps upside to NSO’s GDP growth estimate of 7.6%. For FY25, we expect GDP growth to moderate to 6.7% with bulk of the moderation likely to be statistical (related to normalization impact of net indirect taxes) along with the reversal of benefit to value add to the industrial sector from deflation in input prices (we expect WPI inflation to increase to 3% in FY25 from -0.7% in FY24).

Says Suman Chowdhury, Chief Economist and Head – Research  

“FY24 has been one of the best years for industrial activity over the last ten years with IIP growth at 5.8% YoY on the back of 5.2% growth in the previous year. This will be the highest growth print for IIP since FY14 excluding FY22, the year just after the outbreak of Covid. To a large extent, this reflects the momentum in the core industries – largely steel, cement, coal and power.

All the 3 segments by economic activity – mining, manufacturing and electricity have seen a broad based growth in the previous fiscal. While Mining moderated somewhat to 1.2% in Mar-24, output grew by a robust 7.5% in FY24. The manufacturing sector saw a pickup in annualized growth to 5.4% vs 4.7% in FY23 despite headwinds in export demand. The demand and output of electricity has been consistently healthy over the last 3 years and stood at 7.1% in FY24; in the month of March, it was higher at 8.6% YoY.

In terms of use based categories, infrastructure goods has notched up output growth of 9.7% in the last fiscal, driven by the increased public capital investments. While consumer goods output has remained an outlier with 3.9% YoY growth in FY24, it has improved to 6.8% YoY in the month of March reflecting an expectation of a healthy consumer demand recovery.”  

Table 1: Annualized growth in IIP and its key components

Chart 1: Headline industrial performance in FY24 has been the strongest since FY11 (barring the COVID induced statistical surge in FY22)

Table 1: On average basis, the post Covid recovery phase is marked by higher growth in IIP coupled with higher volatility compared to the pre Covid phase

Note: Volatility is measured by standard deviation of YoY growth in IIP over the stated period