India's factory output expands 4.8% in January, slowing after two months of strong growth

NEW DELHI: India’s industrial output expanded at an annual rate of 4.8% in January, slowing after two months of strong growth fuelled by festive demand. Factory output had grown 5.2% in the same period a year ago.

Data released by the ministry of statistics and programme implementation on Monday showed that industrial output growth has been robust since November, growing at 7.2% and at an upwardly revised 8% in December, respectively.

That was supported by more than 8% growth in manufacturing in those months. In January, manufacturing sector output grew 4.8%. In the first 10 months of this fiscal, output of this sector grew 4.9%.

The strongest overall industrial output growth so far this year has been in December, after an average 2.8% growth in industrial production in the April-October period.

Businesses usually tend to push inventory into the supply chain during the festive months and a moderation early in the New Year is considered normal.

Policy makers have been betting on the favourable effects of income tax relief offered this year, the GST rate cuts effective from 22 September and the reduction in interest rates to boost the consumption of goods and services.

Latest data showed capital goods output, a proxy for investments in the economy, grew 4.3% in January, against 10.2% growth a year ago.

The consumer non-durables segment, which signals demand for everyday items such as detergents, medicines, and cosmetics, contracted 2.7% in January, against a 0.1% growth in the same period year ago.

Consumer durables such as televisions and refrigerators, which indicate discretionary spending and are sensitive to consumer confidence and interest rates, grew 6.3% in January, against 7.1% expansion a year ago.

Infrastructure and construction goods output saw a 13.7% growth in January, over a 7.3% expansion in the year-ago period, suggesting strong growth in these sectors.

Experts pointed out that industrial output growth in January was broad-based, with mining, manufacturing and power generation growing in a 4-5.1% range. Industrial output expanded 4% in the first 10 months of this fiscal compared with 4.2% a year ago.

“If the present tempo is maintained, growth can move towards 4.5% for the year. This number, however, does not align with the GDP series, which talks of growth of 11.5% in manufacturing,” said Madan Sabnavis, chief economist at Bank of Baroda.

The Index of Industrial Production (IIP) still follows 2011-12 as the base year, while a new, more representative GDP series with base year 2022-23 was released last Friday.

GDP growth

Chief economic advisor V Anantha Nageswaran said on Friday that India's economy is likely to grow at about 7.3% in the March quarter, which is needed to achieve 7.6% expansion in the full financial year, forecast in the second advance estimates released on that date under a new GDP series with 2022-23 as the base year.

Finance minister Nirmala Sitharaman presented the Union budget for the next financial year on 1 February, with a strong focus on the manufacturing, mining and export sectors and specific measures for technology-intensive and labour-heavy sectors.

The government is also simplifying the legal framework, reducing the rigours of compliance on businesses in order to sustain the growth momentum.

However, external uncertainties and armed conflicts in Europe and Asia pose a downside risk to emerging economies including India as these tend to transmit through trade and investment channels to other economies.

Rating company ICRA Ltd. said it expects IIP growth to inch up to 5-6% in February, aided by a favourable base.