IIP growth eases to 5-month low of 4.2% in June

In the use-based category, consumer durables output growth ebbed to a six-month low of 8.6% in June, while that of consumer non-durables growth declined to (-)1.4% from 2.5% in May. India’s factory output growth, as measured by the Index of Industrial Production (IIP), moderated to a five-month low of 4.2% in June from 6.2% in May, primarily due to slower growth in manufacturing activity, official data released on Monday showed. Manufacturing growth (accounting for 78% of IIP) slowed to seven months low of 2.6% in June from 5% in May, and electricity growth eased a three -month low of 8.6% from 13.7%. Mining growth, on the other hand, rose to an eight-month high of 10.3% in June from 6.6% in May.

“The decline in manufacturing growth is possibly due to excessive summer heat conditions in many parts of the country in June apart from inventory rationalisation in some sectors such as auto”. Also, given the lower industrial output in the first quarter along with lower-than-expected profitability, weaker GVA growth in the manufacturing sector may pull down GDP growth in Q1FY25 to below 7%. The RBI has projected GDP to grow 7.1% in April-June quarter, and 7.2% in the entire FY25. In the use-based category, consumer durables output growth ebbed to a six-month low of 8.6% in June, while that of consumer non-durables growth declined to (-)1.4% from 2.5% in May. The contraction in output signifies that the demand from the rural sector is not yet robust.

Broad-based consumption improvement and the revival of private investment remain crucial for the industrial activity. From the consumption perspective, the trajectory of food inflation and progress of monsoon remain the key monitorable. India Ratings and Research (Ind-Ra) said that the impact of general elections was visible in IIP data. The capital goods grew at a meagre 2.4% (lowest since February 2024) in June 2024, signaling muted investment activity in the economy. The growth in infrastructure goods’ output also declined to a seven-month low of 4.4% during the month due to a drop in Government capex. Going forward, Ind-Ra expects IIP growth to average around 4.5% in the near term, as the next four months prints will bear the brunt of the unfavorable base. The average growth during July-October 2023 was 8.8%.