Industrial growth based on the Index of Industrial Production (IIP) rose to 3.1 per cent in September as against 0.7 per cent contraction in August, according to National Statistical Office (NSO) data released on Friday.

However, this is lower than the 4.4 per cent growth recorded in September last year. Experts say the number reflects festival demand, however, it may not remain the same in the coming months mainly because of lower export demand and end of festival season domestically.

The recovery was led by better performance of mining and electricity sectors. However, the manufacturing sector showcased a paltry growth of 1.8 per cent (0.5 per cent contraction in August). Overall, growth in Q2 FY23 was at an eight-quarter low of 1.5 per cent as against 9.5 per cent in the year-ago period, alluding to impact of global growth slowdown and elevated inflation.

Easing growth

Aditi Nayar, Chief Economist, ICRA, said the y-o-y growth of most available high frequency indicators eased in October relative to September, owing to the relatively early onset of the festival season in 2022 and the consequent pre-ponement of pre-festive stocking. “We expect the overall IIP growth to ease to sub-2 per cent in October, as a higher number of holidays in October 2022 relative to October 2021 and flagging external demand are likely to have constrained the performance of the manufacturing sector,” she said.

According to a note prepared by Sunil Sinha, Principal Economist and Paras Jasrai, Analyst of India Ratings & Research (Ind-Ra), trends of labour intensive manufacturing sectors such as textiles (since June), wearing apparels (since August), leather and related products (since July) are worrying ones. Impact of festival demand was visible mainly only on manufacture of beverages, motor vehicles and other transport equipment, which is likely to continue in October also.

Further, it said though the demand for capital/infrastructure goods would continue to get support from the sustained government capex spending both at the Central and State levels, the weak recovery in other sectors could cap the overall growth of factory output in the near term. Going forward, the spell of abnormal rains in October appears to have an impact on coal and electricity sectors. “The high frequency indicators suggest that the coal production in October was up 3.4 per cent y-o-y and the power generation was up 3.1 per cent y-o-y. All in all, Ind-Ra expects the factory output to have a y-o-y growth in low-single digits in October,” it said.