Industrial production grows at 4.2% in April, rebounds from March low

Growth in India’s Index of Industrial Production (IIP) for April was recorded at 4.2 per cent, rebounding from 1.8 per cent in the previous month. Healthy performance in the mining and manufacturing sectors spurred growth, while weakness in electricity output was a dampener.

The manufacturing sector output grew by 4.9 per cent in April, recovering from a five-month low of 1.2 per cent in the previous month. Within the manufacturing sector, 12 out of 23 categories recorded growth in output on a year-on-year basis.

Despite the encouraging performance of the manufacturing sector, export-intensive sectors, such as textiles (-6.3 per cent growth), apparel (-29.1 per cent), and leather and related products (-6.5 per cent) remained pressured amid external demand weakness.

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Electricity output records degrowth

Electricity output continued to contract for the second straight month with a degrowth of 1.1 per cent in April as against a de-growth of 1.6 per cent in the previous month. Sectors related to government spending have also displayed a healthy performance.

A research report by CARE Ratings Ltd states that within the use-based classification, the output of consumer durable goods fell by 3.5 per cent in April, staying in the contraction zone for the fifth month in a row. On the contrary, the output of consumer non-durables recorded an upbeat growth of 10.7 per cent, rebounding from a 2.7 per cent contraction in the previous month.

The output of capital and infrastructure-related goods grew by a healthy 6.2 per cent and 12.8 per cent respectively.

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Pessimism about non-essential spending

On the consumption front, the RBI’s consumer confidence survey (May 2023) pointed at continued pessimism among consumers about spending on non-essential items, which can explain the muted performance of consumer durable goods.

However, sentiment towards non-essential spending has recorded an improvement. A durable pick-up in consumption demand — including rural consumption — remains critical for domestic industrial activity, especially given the weakness in external demand.

The report says that going forward, several factors, such as the Centre’s sustained capex push, improving private sector intent to invest, and RBI’s decision to hold interest rates steady will bode well for the capex revival in the economy.

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Domestic consumption key

The performance in industrial output fared better than expected in April on the back of an improvement in the manufacturing output and robust growth in the construction sector. However, the disappointing performance in the consumer durable goods segment continued to be a drag on the overall growth.

Going ahead, a durable pickup in domestic consumption — including rural consumption — remains critical for the growth in industrial output. The easing of domestic inflationary pressures is a positive for demand in the economy. However, challenges from an uncertain global economic scenario and weak external demand are likely to persist.