IIP growth to inch up to 5.0-5.5% in May 2024: Report

As India’s factory output growth, measured by the Index of Industrial Production (IIP), fell to a three-month low of 5 per cent in April as against 5.4 per cent in March 2024, the rating agency Icra is expecting it to inch up to 5.0 to 5.5 per cent in May 2024.

The YoY growth in a majority of the available high-frequency indicators witnessed an uptick in May 2024 as compared to April 2024; this subset includes output of Coal India (to +7.5 per cent in May 2024 from +7.3 per cent in April 2024), electricity generation (to a seven-month high +14.1 per cent from +10.0 per cent), finished steel consumption (to +11.6 per cent from +9.3 per cent), cargo traffic at major ports (to a six-month high +3.7 per cent from +1.3 per cent), railway freight traffic (to +3.7 per cent from +1.4 per cent, primarily driven by coal), and diesel consumption (to +1.8 per cent from +1.4 per cent).

In contrast, the YoY performance of petrol sales (to a five-month low of +2.4 per cent from +14.1 per cent) and vehicle registrations (to a seven-month low of +2.8 per cent from +27.4 per cent) deteriorated sharply in May 2024 relative to April 2024.

“Based on the trends in the available high-frequency data for May 2024, Icra anticipates the YoY IIP growth to improve, albeit marginally to 5.0-5.5 per cent in that month from 5.0 per cent in April 2024, amidst a high base (+5.7 per cent in May 2023 vs. +4.6 per cent in April 2023),” it added in the report.

The YoY growth in the IIP eased to a three-month low of 5.0 per cent in April 2024 from 5.4 per cent in March 2024, while exceeding Icra's expectations (+4.0 per cent). This was entirely driven by a deceleration in the YoY expansion of manufacturing output owing to an adverse base, even as the growth in mining and electricity generation improved, with the latter being supported by a low base and the impact of a rise in temperatures and heatwaves across some parts of the country in the month.

Among the use-based categories, consumer non-durables output reverted to a YoY contraction of 2.4 per cent in April 2024 after rising by 5.3 per cent in March 2024, owing to an adverse base. Based on the favourable trends in most of the available high-frequency indicators for May 2024, ICRA anticipates the YoY IIP growth to improve, albeit marginally to 5.0 to 5.5 per cent in that month, amidst a high base (+5.7 per cent in May 2023 vs. +4.6 per cent in April 2023).