India’s industrial production saw a slight contraction of 0.1% in August, marking the first decline in 22 months. This was mainly due to a drop in mining and electricity output, as well as an unfavorable base. In the previous month, the Index of Industrial Production had shown a growth of 4.7%, and in August 2023, it had surged by 10.9%.
For the first five months of the current fiscal year, industrial growth stood at 4.2%, compared to 6.2% in the same period last year. The decline was also reflected in the eight core industries, which saw a contraction of 1.8% in August. These industries hold a significant weight of 40.27% in the overall industrial production index. Manufacturing activity, as per the HSBC Purchase Managers’ Index, hit a three-month low of 57.5 in August.
Economists attributed the slowdown in August to the high base effect from the previous year. Factors like heavy rainfall affecting mining activities and a decrease in electricity output by 3.7% played a role in the decline. However, with a normal monsoon and the festive season approaching, experts anticipate a rebound in industrial activity.
The expectation is that the impact of a good monsoon on rural demand will support consumption in the latter part of the fiscal year. Improved consumption and private capital expenditure are crucial for driving industrial growth. Although manufacturing growth slowed to 1%, it is expected to pick up with the onset of the festive season.
Ind-Ra forecasts a return to positive territory for the Industrial Production Index. High-frequency indicators point towards an uptick in industrial activity. Eleven out of 23 sectors witnessed a decline, including pharmaceuticals, paper, and food and beverages. Growth in capital and infrastructure/construction goods also slowed down in August, while consumer durable goods recorded the highest growth at 5.2%.
In summary, while the industrial production showed a slight contraction in August, the overall outlook remains optimistic with expectations of a rebound in the coming months.
