IIP growth at 8-month low in November: What do the numbers say about Indian economy?

The government on Friday released data on inflation and industrial production, which showed a dual impact on the economy. Inflation surged to a 4-month high of 5.69% in December, propelled by a significant increase in the prices of vegetables, pulses, and spices. Conversely, industrial production growth plummeted to an 8-month low of 2.4% in November, mainly because of poor showing by the manufacturing sector.

The previous low IIP growth was recorded in March 2023 at 1.9%. Apart from manufacturing, other components of IIP, such as mining and electricity, also decelerated in November. The IIP growth was also lower than the street estimates. In November 2022, the Index of Industrial Production (IIP) was 7.6%.

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The growth of the manufacturing sector fell to 1.2% YoY in November 2023, sharply down from 6.7% YoY a year ago. Electricity output rose by 5.8% YoY, which is far lower than the 20.4% YoY growth seen in October 2023. Mining also slowed down to 6.8% YoY compared with 13.1% YoY growth in October 2023. All three segments have seen an impact because of an adverse base, said ICICI Bank Global Markets.

Only six categories recorded expansion in November 2023: Within manufacturing, six categories recorded expansion in November 2023 versus 19 in the previous month (October), indicating a sharp deceleration within the industry. Coke and refined petroleum products, basic metals, motor vehicles, and other transport equipment recorded positive growth.

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On the other hand, pharma, chemical products, wearing apparel, computer and electronics, electrical equipment and machinery & equipment and furniture recorded contraction, as stated by ICICI Bank Global Markets. 

Slowdown in capex visible in capital goods and infra/construction goods production: From a use-based perspective, ICICI Bank Global Markets said that three out of the six components, including capital goods, consumer durables, and consumer non-durables, recorded contractions.

The infrastructure and construction goods sector reported a sharp downtick of 1.5% YoY in November due to an unfavourable base and lower government capex. This was also visible in capital goods production volume.

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Even intermediate goods output growth slowed down to 3.5% YoY in November. On the other hand, primary goods registered a growth of 8.4% YoY in November, it added. 

Consumer durables and non-durables record contraction on weak consumption demand: The latest GDP print and several high-frequency indicators point to weak consumption demand in the country. The IIP numbers underline the same, as underscored by ICICI Bank Global.

Consumer durables and non-durables growth contracted during the month amidst low discretionary demand and a rural slowdown. However, the festive month would have also impacted factory output, it noted. 

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Investment-driven growth to sustain: Industrial activity is projected to increase by 7.9% in FY24 (first advance estimates) driven by domestic demand but could be dragged down by weak exports, ICICI Bank Global Markets pointed out.

It says the outlook for exports is weak, with global demand for manufactured products decelerating. A bigger driver of growth could be a pickup in rural demand, which has been lagging.

Further, a normal monsoon next year can be a bigger driver of growth next year. At the same time, real estate cycle and capex acceleration should drive growth higher in the medium term, it stated.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.