Industrial Output Accelerates to 3-Month High in May

The growth in India’s industrial output accelerated to a 3-month-high of 5.2% in May 2023 from 4.5% in the previous month. This encouraging performance during the month was anchored by healthy growth in the mining and manufacturing sectors. Electricity output also picked up following a muted performance over the last two months supporting the overall IIP growth. Within the use-based classification of industrial output, the highlight was the improvement seen in the consumer goods segment (both durable and non-durable goods). However, a durable improvement in consumption demand remains critical for overall industrial activity. Exhibit 1: Index of Industrial Production (y-o-y%) The output of the manufacturing sector grew by an encouraging 5.7% in May compared to 5.2% in the previous month. Within the manufacturing sector, 11 out of 23 categories recorded growth in output on a year-on-year basis. Among the major components of the manufacturing sector, output of basic metals (having the highest weight of 12.8% in overall IIP) grew by an upbeat 9.6% compared to 10.2% last month. The impact of sluggish external demand was visible in the subdued performance of sectors such as textiles (-3.7% growth) and wearing apparel (- 20.9%). Following a dismal performance in the last two months, growth in electricity output inched up to 0.9% in May. Mining output grew by a healthy 6.4% in May compared to 5.2% in the previous month. Overall, the growth in industrial output during the month was anchored by the strong performance in mining and manufacturing segments. Within the use-based classification, the performance of capital and infrastructure-related goods continued to stay upbeat with a growth of 8.2% and 14% respectively. The Centre’s continued focus on capital expenditure has boded well for these sectors. Going ahead, the RBI’s pause in the current rate hike cycle remains positive for the pick-up in private capex. From the consumption perspective, output of consumer non-durables grew by 7.6% in May, continuing with a healthy performance for the second straight month. Encouragingly, the growth in output of consumer durables turned positive after a gap of six months rising by 1.1% in May. Way Forward The growth in industrial output remained encouraging in May with the noteworthy aspect being the improvement in the consumer goods segment. Going ahead, a durable pick-up in consumption remains crucial for the overall industrial activity as the sluggishness in external demand is expected to persist. The inching up of retail inflation driven by an acceleration in food prices is concerning given that the recovery in consumption is underway. Also, any weather-related disruptions could aggravate the risks to the nascent rural demand recovery.