Growth in India’s industrial production unexpectedly slowed to a three-month low of 3.7% in June compared to
5.3% in the previous month. This is lower than our projection of 4.4% growth for the month. The disappointing
performance in industrial output can mainly be attributed to the moderation in the manufacturing sector’s output.
The other concerning aspect was the weakness seen in the consumer goods segment wherein the growth in output
of consumer durables recorded a sharp contraction. Also, growth in the output of consumer non-durables
decelerated during the month.
The manufacturing sector output moderated to a three-month low of 3.1% in June after recording modest growth
in the previous two months. Within the manufacturing sector, a year-on-year contraction was witnessed in 14 out
of 23 categories. The output of basic metals (a major component with a 12.8% weight in overall IIP) grew by
13.6% in June compared to 9% in May. A weak performance was seen in the export-intensive sectors such as
textiles (-0.3% growth) and wearing apparel (-23.3%) which is reflective of subdued external demand conditions.
Electricity output rebounded with a growth of 4.2% in June following a subdued performance in the last three
months. Overall, while the electricity and mining sectors supported the overall industrial activity, slowing growth in
the manufacturing sector weighed on the overall IIP growth.
Within the use-based classification, the output of infrastructure and construction goods continued to record double-
digit growth for the third month in a row rising by 11.3% in June. While capital expenditure by the states has been lagging, the central government has maintained its thrust on capex. Going ahead, the improving capacity utilisation levels and deleveraged corporate balance sheets signal encouraging prospects for the revival of private capex in the economy. These factors are expected to be the tailwinds that will support the output in infrastructure-related segments. The output of consumer durable goods disappointed with a sharp contraction of 6.9% in June as against a growth of 1.2% in the previous month. Growth in output of consumer non-durable goods recorded a sharp deceleration as it grew by a dismal 1.2% in June as against 8.4% in the previous month. With external demand
conditions likely to remain weak, the performance of industrial activity hinges on a durable recovery in domestic demand conditions.
Way Forward
Moderation in the manufacturing sector’s output weighed on the overall industrial activity during the month despite
modest performance in the mining and electricity sectors. With slowing global growth, we expect weakness in
external demand to persist. On the domestic front, a durable recovery in demand remains important for industrial
activity. Domestic demand faces headwinds from the uptick in inflation fuelled by an acceleration in food prices.
Moreover, weather-related uncertainties could play a spoilsport for the recovery in rural demand.
