IIP reaches 7-month high of 5.9% in May

Factory output growth rose to a 7-month high of 5.9 percent in May, helped by a strong performance in the power generation and mining sectors, according to data released by the Ministry of Commerce and Industry on Friday, which came as a surprise.

The overall Index of Industrial Production (IIP) has been at 5 or above 5 per cent for four consecutive months.

The latest reading of IIP growth of 5.9 per cent is higher than the 5.7 per cent growth recorded in May last year and the revised 5 per cent growth seen in April.

However overall manufacturing growth fell to 4.6 per cent in May (from 6.3 per cent). This was sequentially better than 3.9 percent in April 2024.

For April-May 2024, IIP grew by 5.4 per cent, higher than 5.1 per cent in the same period last year.

• Factory output grows 5.8% in FY24 on strong manufacturing

key areas

In May, the growth rates of the three sectors, mining, manufacturing and power stood at 6.6 per cent (6.4 per cent), 4.6 per cent (6.3 per cent) and 13.7 per cent (0.9 per cent), respectively. The 13.7 percent increase in electricity was the highest in seven months.

Within the manufacturing sector, the growth rates of the top three positive contributors to IIP growth for May 2024 are – basic metals (7.8 per cent); pharmaceuticals, medicinal chemicals and botanical products (7.5 percent), and electrical equipment (14.7 percent).

In the use-based classification, the growth rate in May is in primary goods at 7.3 per cent, capital goods at 2.5 per cent, intermediate goods at 2.5 per cent, infrastructure/construction goods at 6.9 per cent, consumer durables at 12.3 per cent and consumer durables at 2.3 per cent. Based on use-based classification of consumer non-durable goods in percentage terms, the top three positive contributors are – primary goods, consumer durable goods and infrastructure/construction goods.

CRISIL chief economist Dharamkirti Joshi said consumer-oriented goods drove the growth in IIP. He said while consumer durables recorded the strongest growth in May among the six major manufacturing categories, non-durables also grew after a decline in the previous month.

However, infrastructure, construction and capital goods slowed, suggesting some deceleration in investment momentum. Joshi said the central government’s capital expenditure had slowed down in May amid the elections.

“Going forward, industrial growth can be boosted by improving consumption as rural demand grows due to healthy agriculture.

The urban economy is being supported by strong credit growth, but this is likely to moderate due to rate hike and slowing down of services”, he said.

Overall, CRISIL expects India’s GDP growth rate to decline to 6.8 percent this fiscal year from 8.2 percent last year.

Sunil Kumar Sinha, principal economist, India Ratings & Research, and Paras Jasrai, senior economic analyst, India Ratings & Research, said weak manufacturing growth is a matter of concern for the sustainability of the industrial recovery.

At the use-based classification level, consumer durables recorded the highest growth (12.3 per cent year-on-year, at a three-month high) boosted by favorable base effect and demand surge due to heatwave.

Sales of consumer non-durable goods rose 2.3 percent year-on-year in May after a decline in the previous month, however, this remained in sharp contrast to the durable segment.

“The latest data confirms Ind-Ra’s assertion of the persistence of heterogeneity in consumption demand, which is led by higher-income households.

This is worrying, because such consumption patterns will not allow overall consumption demand to be broad-based,” Sinha and Jasrai said.

Capital goods grew at a slow 2.5 per cent year-on-year in May 2024 (lowest since February 2024), indicating subdued investment activity in the economy.