Manufacturing and mining sectors have helped industrial growth to rise to a five-months high of 5.7 per cent in July, government data released on Tuesday showed.

Better performance of industry along with moderation in inflation will give room to Monetary Policy Committee to maintain status quo in policy rate.

As per the IIP (Index of Industrial Production) data released by the National Statistical Office, the manufacturing sector’s output grew 4.6 per cent in July 2023 against 3.1 per cent a year ago. Mining output rose 10.7 per cent during the month against a 3.3 per cent contraction a year ago.

As per use-based classification, capital goods grew 4.6 per cent in July this year compared to 5.1 per cent a year ago. While consumer durables output declined by 2.7 per cent ( 2.3 per cent), consumer non-durable goods output increased by 7.4 per cent (compared to a contraction of 2.9 per cent a year earlier) during the month.

Aditi Nayar, Chief Economist with ICRA said the latest number exceeded expectations on account of a better-than-expected performance of the manufacturing sector. The y-o-y performance of most available high frequency indicators improved in August 2023 relative to July 2023, including freight and electricity generation.

Rajani Sinha, Chief Economist with CARE felt infrastructure and construction segment continued to put up a healthy show gaining from the Centre’s sustained capex push. “The sharp rebound in consumer non-durables segment in July came as a surprise, but we will have to wait and watch to see if this trend sustains. Festive season is likely to provide a fillip to consumption demand in the near term,” she said.

Economists are upbeat yet advice caution for coming months. “Based on these trends as well as a favourable base (-0.7 per cent in August 2022), ICRA expects the y-o-y IIP growth to witness an uptick to 5-7 per cent in August 2023,” says Nayar. Sinha feels that over a longer period of time, unfolding of the domestic demand scenario remains critical for industrial activity. “The elevated food inflation and monsoon-related vagaries could pose a risk for consumption demand,” she said.

Consistent growth in the capital goods and infra/construction goods production hints at heathy investment cycle in the economy, says Vivek Rathi, Director (Research) with Knight Frank India. However, “slowing consumer durable goods production is hinting at slowdown in personal consumption of the households,” he added.

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