India’s factory output growth may have edged down slightly to about 5 per cent in June, several economists said. The government will release the Index of Industrial Production (IIP) data for June 2023 at 5.30 pm on Friday.
It may be recalled that industrial growth had hit a three month high of 5.2 percent in May 2023. The IIP growth in June last year was 12.6 percent, riding on a favourable base.
Adding to the complexity of the forecast this time round was the fact that performance of lead indicators has been mixed.
Although the eight core industries, which make up about 40 percent of the IIP, hit a five month high of 8.2 per cent in June, the merchandise exports were down 22 percent in June this year. There was also demand slowdown, affecting automobile production. The Purchasing Managers’ Index (PMS) for the manufacturing sector slipped to 57.8 in June as compared to May’s 58.7, which was at a 31-month high.
Economists at various organisations estimate that June industrial growth is likely to be in the 3.9-6.3 percent range.
Rahul Bajoria, Managing Director and Head of EM Asia (ex China) Economics, Barclays, said, “We expect IIP growth to print 5 per cent year-on-year in June. Core infra output data released earlier showed strong growth in June, albeit supported partly from a low base. Sequential growth in steel and cement production shows that momentum in manufacturing is broadly holding up. That said, headwinds from weak external demand is likely to reflect in continued weak growth in IIP of export-oriented sectors”
According to Aditi Nayar, Chief Economist, Head-Research and Outreach at ICRA Ltd, IIP is expected to come at 5.5 percent for June 2023.
Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, said, “Anticipating a 5 per cent surge in the Index of Industrial Production, we expect manufacturing to show signs of moderate growth. This should reflect in the Q1 FY24 GDP growth at around 7.5 per cent with the industrial sector growth continuing at a decent pace”.
Madan Sabnavis, Chief Economist, Bank of Baroda, said, “Overall growth in IIP could be in 5-6 per cent range in June”.
ICRA’s estimates indicate that consumer price index (CPI) inflation for July 2023 will be at 6.5 percent, Nayar said.
“The spike in vegetable prices is set to push the July CPI inflation well above the MPC’s 6 per cent to at least 6.5 per cent upper threshold. The subsequent rise in prices of various other food items suggest that the CPI inflation will revert below at least 6.5 per cent by September 2023”, Nayar added.
Reserve Bank of India’s Monetary Policy Committee (MPC) left the repo rate unchanged at 6.5 percent for the third meeting in a row. The government is expected to release CPI July number on August 14.