The robust 13.9 per cent growth in manufacturing sector output in July–September 2023 — which lifted overall Q2 GDP growth to a blistering 7.6 percent—can largely be explained by the surge in nominal profits of manufacturing listed companies, say industry insiders and economy watchers. Profitability and margin boosts for manufacturing companies came on the back of a fall in commodity input costs, despite geopolitical headwinds.

Manufacturing sector output growth was also bolstered by a more supportive manufacturing sector deflator.  Put simply, a deflator reflects the inflation or deflation within the manufacturing industry by comparing the current prices of goods produced to a base period.

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For the first time in more than two years, manufacturing sector growth in the July–September 2023 quarter exceeded services sector growth, official data released on Thursday showed. This has now raised debate in policy circles as to whether growth in India is shifting from services to manufacturing.


Meanwhile, the latest strong show on the manufacturing front has not come as a surprise to industry insiders and captains of industry.

“We were expecting this strong manufacturing performance for Q2. This double-digit expansion was not at all surprising for us. We were expecting this kind of print as it was corroborated by the strong profit performance of Corporate India and margin expansion due to the fall in input prices in Q2 for industry,” an industry insider said.

The same trend of strong manufacturing growth is expected to be sustained in the current third quarter as well, given the festival season demand playing out, this representative added. This will have a positive impact on overall GDP for the third quarter as well.

After a robust result in Q1 this fiscal with a 30 per cent growth in bottomline, in Q2 also, India Inc reported a year-on-year PAT growth of 31 per cent.

This was mainly contributed by sectors such as Banks, Auto, Capital Goods, Cement, Electronics, Power Generation, realty, FMCG, etc.

‘Heartening to note’

FICCI President Subhrakant Panda said that the contribution of the manufacturing sector to Q2 GDP is heartening to note.

“It is an outcome of the foundation laid through supportive policies, including the PLI scheme and measures to enhance ease of doing business, besides the overall uptick in economic activity,” he said.

Chandrajit Banerjee, Director General, CII, said, “A slew of interventions announced by the government, including PLI, improving ease of doing business, lowering the cost of doing business, and provision of facilitative environment for the logistics sector through the National Logistics Policy, among others, have buttressed the strong growth posted by the manufacturing sector.”

He highlighted that a strong capex push, primarily led by the government, is supporting investment, and it augurs well for stimulating demand in other sectors through its multiplier impact on growth.

Banerjee expects domestic demand drivers to continue to support India’s GDP growth in the remaining quarters, despite global headwinds.

As per the CII Research analysis of 2,430 non-financial listed companies (oil and gas) from the CMIE Prowess Database, net profits jumped by a sharp 66 per cent in Q2 compared to 39 per cent in the previous quarter. Along with lower input prices, it provided a boost to net margins.

Net sales, in contrast, continued to post a contraction, albeit by a lower magnitude of 0.6 per cent in Q2 FY24 as compared to (-)2.0 per cent in the previous quarter.

There are many reasons for the increase in manufacturing growth, but the government’s PLI scheme, which targets 14 sectors, is among them, according to a SBI Research Note.

PLI schemes have transformed India’s export basket from traditional commodities to high-value-added products such as electronics and telecommunication goods, processed food products, etc, it added.

Meanwhile, this SBI Research Note highlighted that corporate performance has been well integrated with GDP calculations with improved digitalisation, and reporting by companies.

“We have mapped IIP growth with manufacturing GDP growth from Q1FY13 to Q2FY24, which shows a correlation of 0.87; however, in the post-covid period, the correlation has increased to 0.93,” it added.

On Thursday, India’s second quarter GDP growth surprised on the upside at 7.6 per cent (well above most analysts and economists estimates), prompting economists and foreign and domestic brokerage houses to revisit their GDP projections and revise them upwards on Friday.