Pulled down by a tepid manufacturing show, the country’s factory output measured by the Index of Industrial Production (IIP) grew at a weaker-than-expected three-month low rate of 3.7 per cent in June 2023, official data released on Friday showed.

This latest growth print was much lower than the upwardly revised 5.3 percent growth recorded in May 2023 and belied the hopes raised by the strong June 2023 core sector growth performance of 8.2 percent, which was a five-month high. The eight Core sector industries make up 40 percent of IIP.

In June last year, IIP recorded 12.6 percent growth, largely due to a favourable base in 2021 when Lockdown-2 was imposed.

For the April-June 2023 period, the IIP grew 4.5 per cent, much lower than the 12.9 per cent growth recorded in the same period last fiscal, data released by the Ministry of Statistics and Programme Implementation (MOSPI) showed.

Ahead of the official data release, economists were estimating IIP growth to fall in the 3.9–6.3 per cent range.

Weak Manufacturing 

The overall IIP growth was brought down by a weak show in manufacturing, which recorded a growth of 3.1 per cent for the month under review.

This was substantially lower than the 12.9 per cent growth recorded by this segment in June last year.

As many as 14 of the 23 sectors in manufacturing registered negative growth.

The significant non-performers were food, textile-related, and electronics, amongst others. Machinery and metals were the drivers here.

The performance of electronics is a disappointment as this industry had been a front runner for the PLI scheme, said Madan Sabnavis, Chief Economist,Bank of Baroda.

“IIP growth came in lower than our expectations at 3.7 per cent. We had a forecast of 5.5 per cent, which was based on support coming from the consumer goods segment to the impressive core sector performance”, Sabnavis said.

“The third quarter will be crucial for the manufacturing sector as this will be the time when festival demand will add to growth. Here, both rural and urban demand would matter”.

Aditi Nayar, Chief Economist and Head of Research and Outreach, ICRA Ltd., said that the IIP slowdown was led by the manufacturing sector, while the mining and electricity sectors witnessed an improvement in their growth performance amid deficient rainfall in the month.

The YoY performance of most available high-frequency indicators, such as petrol and diesel sales, generation of GST e-way bills, output of Coal India Limited, cargo traffic at major ports, rail freight traffic, and electricity generation, improved in July 2023 relative to June 2023.

In contrast, the YoY growth in vehicle registrations and finished steel consumption deteriorated in July 2023 relative to the previous month while remaining in double digits.

“Based on these trends, ICRA expects the YoY IIP growth to witness an uptick to around 4-6 per cent in July 2023”, Nayar said.

USE-BASED CLASSIFICATION 

In terms of use-based industries, infrastructure industries excelled with growth of 11.3 per cent, while consumer durables fell by 6.9 per cent. FMCG grew by 1.2 per cent.

“Clearly there is still stagnation in consumption. For the first quarter, consumer goods have shown negative growth of 2.8%”, Sabnavis said.

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