Industrial production rises to 16-month high in October: Factors driving this robust growth

The Index of Industrial Production (IIP) surged to a 16-month high, marking an 11.7% YoY increase, in October 2023 compared to 6.2% YoY growth in September 2023. This notable growth was primarily driven by double-digit expansions in the mining, manufacturing, and electricity sectors. 

The manufacturing sector, with a significant 77.63% weightage in the basket, reached a 10-month high with a YoY increase of 10.35% in October, attributed to increasing industrial exports and the continuous expansion of PMI manufacturing on the backdrop of slowing global demand.

Mining activities saw a growth of 13.14% YoY in October, propelled by increased coal production and natural gas extraction. Electricity output witnessed a 20.4% YoY growth in October, reaching a 17-month high. This expansion signifies a robust resurgence in industrial activity, driven by sustained domestic demand.

While the low base effect contributed to the strong YoY growth in October 2023, the sequential increase of 1.8% indicates a credible uptick in industrial production, said ICICI Bank Global Markets.

Capital and consumption goods are driving growth: From a use-based perspective, the infrastructure and construction goods sector reported an increase of 11.3% YoY in October (8.9% YoY in September).

ICICI Bank Global Markets attributes this growth to the government's emphasis on front-loading capital expenditure (34% YoY in FYTD24) and the nationwide upswing in real estate activities.

This trend is further reflected in the substantial growth in the production volume of capital goods. Additionally, intermediate goods output saw a 9.7% YoY increase in October (compared to 6.1% YoY in September), as per the brokerage.

Primary goods also experienced growth, with an 11.4% YoY uptick in October (compared to 8% YoY in September), driven by robust domestic demand. Consumer durables recorded a noteworthy double-digit growth of 15.9% YoY in October (compared to 1.1% YoY in September), marking a sixteen-month high. ICICI Bank Global Markets notes that this surge is influenced by the lower base effect.

Despite a slower recovery in rural demand amid reduced farm income, non-durables output achieved 8.6% YoY growth in October (compared to 3% YoY in September), according to the brokerage.

Manufacturing momentum: Sector breakdown and key drivers: Within manufacturing, 19 categories have shown expansion in October 2023 versus 14 in the previous month. 

Manufacturing segments that drove this growth, according to ICICI Bank Global Markets, were machinery and equipment at 26.1% YoY growth in October (4.8% YoY in September), followed by transport equipment at 26.4% (7.1% in September), motor vehicles at 24.4% (11.2% in September), fabricated metal at 18.5% (8.6% in September), electrical equipment at 13.2% (6.3% in September), and basic metal at 11.9% (12.5% in September).

Notably, chemical and chemical products, which saw contraction in the previous five months, expanded by 4.4% YoY in October (-5.6% in September). Beverages and textiles showed positive momentum in October as well.

Conversely, wearing apparel sustained its fifteenth consecutive contraction at -5% YoY in October (-17.9% in September), along with computer and electronics at -5.3% YoY (compared to -8.9% in September). 

Furniture output continued its decline for the eleventh consecutive month at -7.2% YoY in October (-20.2% YoY in September), as reported by the brokerage.

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