IIP Growth To Pick Up Ahead Of Festive Season Demand, Govt Spending

The Bank of Baroda in a recent report has said that India's Index of Industrial Production (IIP) growth is likely to pick up again ahead of the festive season demand and also due to an increase in government spending. According to the data released by the Ministry of Statistics & Programme Implementation, it recorded a growth of 4.2 per cent in June 2024.

The report stated, “Even as demand-side pressures impacted the production of non-durables, we expect this trend to reverse in the coming months. Higher than normal monsoon and improvement in Kharif sowing is expected to revive rural demand.”

Notably, it added that the cooling down of inflation will also help spur urban demand. Solid improvement in services sector activity is also a reflection of this. As the monsoon was strong in July 2024, and Markit manufacturing PMI also eased a tad in July 2024, the BoB expects slight moderation in growth next month.

In India, IIP growth slowed more than expected in June 2024, as it came in at 4.2 per cent versus the BoB estimate of 4.5 per cent, from an upwardly revised 6.2 per cent in May 2024. Barring mining (10.3 per cent in June 2024 versus 6.6 per cent in May  2024), growth in output of both manufacturing (2.6 per cent versus 5 per cent) and electricity (8.6 per cent versus 13.7 per cent) eased. 

This is the slowest rate of growth for the manufacturing sector in seven months. In the case of electricity production, the early onset of monsoon in certain parts of the country impacted demand. This implies, in quarterly terms, in Q1FY25, IIP growth was at 5.2 per cent versus 5.1 per cent in Q4FY24 and 4.7 per cent in Q1FY24. 

The manufacturing sector output slowed and registered 3.8 per cent growth in Q1 this year (5.1 per cent last year), versus 4.8 per cent in Q4. India's mining sector growth (7.9 per cent) on the other hand improved, compared with both Q4 (5.1 per cent) and Q1 (6.3 per cent) of last year. With record heat-wave conditions persisting during the Apr to June 2024 period, electricity output jumped sharply by 10.9% per cent in comparison with a 7.3 per cent increase in Q4 and 1.3 per cent in Q1FY24.

Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry (PHDCCI) said, “In the April-June 2024 quarter, mining growth surged to 7.9 per cent compared to 6.3 per cent in the same period. On the other hand, electricity recorded a high growth of 10.9 per cent in comparison to 1.3 per cent in the April to June 2023 quarter. Despite global economic volatility, we look forward to the growth trajectory of the Indian economy remaining on the high road in 2024-25 too.”

Meanwhile, the CareEdge Ratings in its report added that from the consumption perspective, the trajectory of food inflation along with the spatial and temporal distribution of rainfall remain the key monitorable. “The revival in private investment remains another important aspect to watch out for in the coming quarters,” it stated.

Amidst the mixed trends in the available high-frequency data for July 2024, Icra anticipates the YoY IIP growth to print at 2.5-4.5% in that month, given an adverse base (+6.2 per cent in July 2023). The YoY performance of the available high-frequency indicators reveals a mixed trend in July 2024 relative to June 2024. The YoY growth in the output of Coal India Limited (to a 28-month low of +2.5  per cent in July 2024 from +8.8  per cent in June 2024) and electricity generation (to a seven-month low of +6.4 per cent from +9.9  per cent) moderated in July 2024, relative to June 2024, with excess rainfall impacting mining activity and leading to a cooling in power demand. 

Additionally, the pace of expansion in finished steel consumption (to +14.6 per cent from +21.1  per cent, while remaining healthy) and cargo traffic at major ports (to +6.0  per cent from +6.8 per cent) deteriorated in July 2024, vis-à-vis June 2024. In contrast, the YoY performance of mobility-related indicators including GST e-way bills (to a nine-month high of +19.1  per cent in July 2024 from +16.3  per cent in June 2024), vehicle registrations (to a three-month high of +13.7  per cent from +1.3  per cent), petrol consumption (to a three-month high +10.5  per cent from +4.6  per cent), and diesel consumption (to a five-month high +4.5  per cent from +1.0  per cent) witnessed an improvement in July 2024, relative to June 2024.