A manufacturing slowdown and slower public capex spending led to industrial growth easing to 3.8% in January compared with 4.2% in the previous month, showed government data released Tuesday.
Mining expanded 5.9% in January compared with 5.2% in the previous month, whereas electricity production increased 5.6% from 1.2% earlier.
On the other hand, manufacturing growth eased to 3.2% from 4.5% in December.
“The loss in manufacturing momentum follows the surge in the festive period in December. While there were some upturns in mining and electricity sectors (despite a high base), it was not enough to offset the slower manufacturing sector growth, which has a 77.6% share in the IP index,” said Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics, Barclays.
In the first 10 months of the year, industrial growth averaged 5.9% compared with 5.5% in the April-January period in FY23.
Manufacturing has been driving growth in FY24, with the sector recording double-digit growth over the last two quarters.
The Indian economy grew at over 8% in the first three quarters of the year, according to data released last month.
Economists expect growth to maintain momentum in the coming months.
“As the states and the union government would be looking to meet their annual capex targets in the remaining two months of this fiscal, the infrastructure industries are expected to get the required support,” said Ind-Ra economist Paras Jasrai and Sunil Kumar Sinha.
Ind-Ra highlights that growth could average 5-6% in the last two months of the year.
A better number
While the manufacturing sector contracted 0.9% sequentially, the overall industrial output was up 0.6% in January.
Within manufacturing, while automobile and labour-intensive sectors showed promise, the decline was led by computer and electronics.
“The silver lining of the January 2024 IIP data though is that the output level of all use-based segments are above the pre-COVID level (February 2020) after a gap of 33 months. Overall, the factory output was 14.0% higher than the pre-COVID level in January 2024,” said Ind-ra economists.
While capital goods sector showed a sign of pick-up, the performance in consumption goods industries was mixed.
Consumer durables grew 10.9% in January, lifted by a base effect of 8.2% contraction in January last year, whereas non-durables registered a contraction of 0.3% from 2.4% growth in the previous month.
“The contraction in consumer non-durables remains reflective of the weakness in consumption. It is concerning that consumer non-durables performance has remained feeble in the last few months,” Rajani Sinha, chief economist, CareEdge.
“With CPI inflation moderating, it would be interesting to see if that gets reflected in improved consumption demand in the coming quarters,” the CareEdge economist further added.