Industrial output growth scaled an eight-month peak of 7.1% in April from a year earlier, with all the use-based categories witnessing expansion for the first time since August 2021. The rise in the index was despite the spike in inputs costs in the wake of the Russia-Ukraine conflict.
Though the growth was aided by a somewhat favourable base, it reflected renewed traction in manufacturing, which moved up 6.3% in April from 1.9% in the previous month, showed the official data released on Friday. Both mining and electricity segments, too, put up a decent show — the latter mainly due to a scorching summer. The overall IIP was also up 6.8% from the pre-pandemic period (April 2019).
Given the favourable base in the wake of Covid-related curbs during the second wave, industrial output in May will likely record a double-digit expansion, though a rise in the interest rate can potentially weigh on the momentum, analysts said.
In signs that both investments and urban consumption are somewhat recovering, growth in capital goods and consumer durables scaled eight-month peaks of 14.7% and 8.5%, respectively.
However, a tepid 0.3% rise in consumer non-durables suggests rural purchasing power is still bruised and that growth in broader private consumption remains uneven.
Moreover, compared with the pre-pandemic period, capital goods and consumer durables have witnessed a contraction. This has led some analysts to say investment is still driven substantially by the government and private investment is yet to see a broad-based revival.
The recently-released GDP data, too, showed that growth in private final consumption expenditure in the March quarter dropped to 1.8% from 7.4% the previous three months. Gross fixed capital formation grew 5.1%, against 2.1% in the previous quarter, driven significantly by official investments.
“The paltry year-on-year growth in the consumer non-durables in April also alludes to the K-shaped recovery, whereby households falling in the lower end of the pyramid are finding their real income being eroded disproportionately by the high inflation,” economist at India Ratings wrote.
At the use-based classification level, apart from capital goods and consumer durables, the rise in primary goods (10.1%) and intermediate goods (7.6%) exceeded the growth in the overall IIP. Only infrastructure goods (3.8%) and consumer non-durables trailed the headline IIP growth.
Crisil chief economist DK Joshi said, “While the high on-year growth in April is low-base driven, IIP did show improvement sequentially as well. What’s worrying is that consumer goods growth remains weak, indicating sluggish private consumption.”
Icra chief economist Aditi Nayar said, “Led by pent-up demand, we expect services to outperform the demand for goods in the near term, with the latter further constrained by elevated prices.”
The weak showing of capital goods output relative to the pre-Covid level, Nayar said, indicates the uptick in capacity utilisation in Q4FY22 will not trigger a rapid private sector capacity expansion in light of the uncertainties generated by geopolitical developments.
Bank Of Baroda chief economist Madan Sabnavis said the IIP growth “buttresses the confidence given by the PMIs and GST collections during this challenging period”. “We need to see if this momentum can be sustained going forward.”
The economists at India Ratings said electricity output is expected to clock double-digit growth in May (power generation in May was 23.3% higher than a year earlier) on account of demand driven by the intense heatwave. The coal output was up 33.9% on year in May and is expected to keep up the momentum in the mining sector.
“As the economic activities normalises further, the capital and infrastructure goods may also get impetus due to the ongoing capex by the Union and state governments,” they added.