New Delhi: India’s factory output growth fell to a three-month low of 5.8% in September from 10.34% in August due to slower activities in the manufacturing, mining, and electricity sectors, official data released on Friday showed.
The growth in the index of industrial production or IIP fell during September, after two months of expansion. While the growth in August was at a 14-month high, factory output rose by 6.03% in July.
The factory output growth stood at 3.3% in September 2022.
“The growth rates over the corresponding period of the previous year are to be interpreted considering the unusual circumstances on account of covid-19 pandemic since March 2020," said an official statement.
According to the data released by the National Statistical Office (NSO), the manufacturing sector output, which has the highest weight in the IIP, grew by 4.5% in September 2023, compared to 9.3% in August 2023.
During September, mining production rose 11.5% and electricity output increased by 9.9% but the growth was slower than 12.3% and 15.3%, respectively, in August.
The IIP grew by 6% in April-September 2023 compared to 7.1% growth registered a year ago.
"The concerning aspect is the sharp sequential deceleration in the manufacturing and electricity sectors. Within the use-based classification, the production of consumer goods decelerated sharply, with modest growth seen in the consumer durables component," said Rajani Sinha, Chief Economist, CareEdge.
"Slowing global growth and downside risks to rural demand remain a cause of concern," Sinha said, adding that a broad-based and durable improvement in consumption remains critical for the momentum in industrial activity.
Consumer durables output rose in September by 1% against a 2.3% fall in the year-ago period. Consumer non-durable goods output rose by 2.7 % in September compared with a 5.7% contraction a year ago.
"The overall performance is encouraging and should lead to stable industrial growth for the year. The crux will be picked up in consumption and investment," Bank of Baroda said in a report on the latest IIP data.
"Readymade garments have been a low performer due to exports being low. October has indicated that exports could have turned the corner and if sustained can provide the requisite boost for the textiles sector," it added.
India’s manufacturing activity in October grew at the slowest pace in eight months, dragged down by slowing demand in the consumer goods segment, even as new orders dropped to the lowest in a year and cost pressures intensified, according to a survey by S&P Global Market Intelligence.
The purchasing managers index (PMI) for manufacturing fell to 55.5 in October from 57.5 in September. Though the October PMI Manufacturing data was above its long-run average of 53.9, it was the slowest rate of expansion recorded since February. The 50-mark separates expansion from contraction.
India’s economy is likely to grow at 6.5% in FY24, according to the Reserve Bank of India’s estimates.
However, high input costs and high interest rates, uncertainties over external demand and adverse weather conditions could pose downside risks to growth in the coming quarters.
"An unfavorable base, a shift in the festive calendar and excess rainfall caused the year-on-year (YoY) growth in the IIP to nearly halve to a lower-than-expected 5.8% in September 2023 (ICRA’s exp.: +8.0%) from 10.3% in August 2023,'' said Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA Ltd.
‘’While the moderation was broad-based across all sub-sectors and use-based categories, the performance of consumer goods was especially tepid at +1.0% and +2.7%, respectively, for durables and non-durables, resulting in the manufacturing sector's performance trailing that of mining and electricity in September 2023,'' added Nayar.
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