Dec factory output up 4.3%, manufacturing growth slows

Manufacturing output, which accounts for 77.6 per cent of the weight of the IIP, grew at a slower pace of 2.6 per cent in December 2022 despite having a low base of 0.6 per cent in December 2021. The year-on-year growth rate for manufacturing moderated from 6.4 per cent seen in November 2022. In absolute terms, manufacturing output was recorded at 143.5 in December compared with 137.1 in November and 139.8 in December 2021.

The maximum increase in the growth in December was seen for the manufacturing of pharmaceuticals, motor vehicles, machinery and equipment, while the maximum decline was seen for manufacturing of computer, electronic and optical products, apparel, tobacco products and textiles.

Electricity output grew 10.4 per cent in December 2022 as against a low base of 2.8 per cent growth in December 2021 and 12.7 per cent in November 2022. Mining output grew 9.8 per cent in December 2022 as against a 2.6 per cent growth in December 2021 and 9.7 per cent growth in November 2022.

Capital goods output, which is indicative of investment demand, recorded growth of 7.6 per cent in December as against a contraction of 3 per cent a year ago, while infrastructure/construction goods output grew 8.2 per cent in December compared with 2.0 per cent growth last year. Consumer durables, which indicates consumption demand, again slipped into negative territory with a sharp contraction of 10.4 per cent in December despite having a low base of (-)1.9 per cent signalling waning off of festive demand. However, consumer non-durables, which is an indicator for fast-moving consumer goods, grew 7.2 per cent in December as against 0.3 per cent growth a year ago.

Experts said that some weakness is visible in manufacturing output and services are expected to provide support to growth going ahead also. “Industrial output rose again, with manufacturing growing, but at a relatively softer rate. We think some weakness is starting to show in manufacturing, though much less than in peer economies. Growth will continue to be driven by services sector growth, which is holding up well…in level terms, output was the highest since March 2022. On a rolling basis, though, IP still remains relatively weak,” Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays said.

The slowing consumption demand may get affected further with increase in product prices and interest rate hikes being undertaken by the Reserve Bank of India, experts said. “…the infra related industries are showing good traction while it is volatile for consumer goods as the main season is over and the pent up demand syndrome has gotten diluted. Growth will continue to be narrowly focussed rather than broad based in the next three months of the year. Firms have also been raising prices of their products which will come in the way of demand as will the series of interest rate hikes invoked by the RBI,” Madan Sabnavis, Chief Economist, Bank of Baroda said.