Industrial production grew by 5.2 per cent in January, showed data released by Statistics Ministry on Friday. The growth number derived from Index of Industrial Production (IIP) was 4.7 per cent in December and 2 per cent in January last fiscal.

With this improvement, all eyes would be on inflation data, to be released next week. These two high frequency economic indicators, especially inflation, will play an important role in monetary and credit policy review. The review will be undertaken by the Monetary Policy Committee (MPC) under the Chairmanship of RBI Governor Shaktikanta Das. The expectation is that there could be one more round of policy rate hike as core inflation remains sticky at over 6 per cent.

Data showed that while the manufacturing sector’s output increased by 3.7 per cent in January against 1.9 per cent in last January, mining output rose 8.8 per cent and power generation surged 12.7 per cent during the month under review against 3 per cent and 0.9 per cent, respectively, during January. However, growth in the remaining two months of the current fiscal may not be as high as December and January.

Moderate growth

Terming the latest overall growth number as moderate, Aditi Nayar, Chief Economist with ICRA, said that healthy performance of primary, capital and infra goods and consumer non-durables offset the marginal rise in intermediate goods and discouraging contraction in consumer durables. A portion of the continuing, albeit narrower, contraction in consumer durables stemmed from weak exports. Latest growth number stood at the second highest level since July 2022.

Rajni Sinha, Chief Economist with CARE ratings, said positive momentum effect continued to support the industrial activity for the third consecutive month. Export-intensive items such as textiles, leather and apparels continued to witness contraction in output. Expansion in the consumer non-durable goods output for the third consecutive month is a positive development, she said.

According to Nayar, despite the subdued base related to the third wave of Covid-19, some of the available high frequency indicators recorded a weaker YoY performance in February, relative to January, such as Coal India Ltd’s output, rail freight traffic, ports cargo traffic, electricity generation and auto output. In contrast, vehicle registrations and finished steel consumption witnessed an improved YoY performance in February, relative to the previous month. Based on these trends, she said, “we expect the IIP to record a dip in the YoY growth to 3-5 pr cent in February 2023..”

Key factors

Sinha feels resilient urban demand, easing commodity prices and improvement in the rural demand are tailwinds for industrial output. “Going ahead, factors like high inflation, rising interest rates, weak external demand and waning domestic pent-up demand pose downside risks for the momentum in industrial activity,” she said.

Mohit Ralhan, Chief Executive Officer with TIW Capital, expects “a revival of the capital investment cycle and high spending on infrastructure are likely to keep IIP growth above 5 per cent, keeping Indian economic growth on track.”