India’s factory output eases to 4.9% in March, grows 5.8% in FY24

Economists said the slowdown in industrial output is likely to have come on the back of a moderation in the government’s capital expenditure towards the year-end. Consumption showed a mixed picture in March, with a pickup in rural demand as against the urban demand.

“The slowdown in March was driven by infrastructure and construction goods, reflecting moderating government capital expenditure at the end of the fiscal. Among consumer products, while durables slowed, non-durables revived this month, hinting at a moderation in urban demand and a revival in rural demand. Rural demand, which was a key drag for consumption last fiscal, could revive this fiscal. Early weather forecasts predict a normal monsoon this year. However, the lagged impact of the Reserve Bank of India’s (RBI) rate hikes and regulatory tightening of credit could have a moderating impact, especially for urban consumption. A lower fiscal impulse this year is further expected to dial down the capex support to growth,” Dharmakirti Joshi, Chief Economist, CRISIL said.

Manufacturing, which accounts for 77.6 percent of the weight of the IIP, grew by 5.2 per cent in March as against 4.9 per cent in February and 1.5 per cent in the year-ago period. In FY24, manufacturing output grew 5.5 per cent as against 4.7 per cent in the previous year.

Mining output slowed to a 19-month low of 1.2 per cent in March, down from 8.1 per cent in February and 6.8 per cent in the year-ago period. For FY24, however, mining output rose 7.5 per cent as against 5.8 per cent in FY23. Electricity output grew 8.6 per cent in March as against 7.5 per cent in February and a contraction of 1.6 per cent in the year-ago period.

Output of capital goods — an indicator of investment — grew 6.1 per cent in March, higher than 1 per cent in February but lower than 10 per cent in the year-ago period. For FY24, it slowed to 6.2 per cent from 13.1 per cent in the previous year.

On the consumption front, consumer durables output, which reflects consumption demand, grew 9.5 per cent in March as against 12.4 per cent in February and a low base of (-)8 per cent in the year-ago period. Consumer non-durables output, which reflects fast-moving consumer goods, grew 4.9 per cent in March as against (-)3.5 per cent in the previous month and (-)1.9 per cent in the year-ago period.

For FY24, consumer durables output and consumer non-durables grew 3.6 per cent and 4 per cent, respectively, as against 0.6 per cent and 0.7 per cent in the previous financial year.

“Consumer durables and non-durables in FY24 recorded a much lower growth at 3.6 per cent and 4.0 per cent respectively suggesting continued weakness in consumption demand. Even in terms of output level these two segments are much more precariously placed vis-a-vis other use-based segments,” a note by India Ratings’ Principal Economist Sunil Kumar Sinha and Senior Analyst Paras Jasrai said.

As per the IIP data, 15 of the 23 sectors in manufacturing registered growth in March, with the manufacture of furniture, other transport equipment, fabricated metal products, except machinery and equipment, among the highest growing sectors. Eight sectors recorded contraction, with manufacturing of tobacco, leather and food products in the negative.

Cumulatively, in FY24, 12 sectors recorded growth, with highest growth seen in other transport equipment, motor vehicles, trailers and semi-trailers and basic metals recording highest growth rates. Ten sectors recorded contraction with sharpest decline seen in wearing apparel (-14.2 per cent), computer, electronic and optical products (-11.4 per cent), furniture (-6.9 per cent) and other manufacturing (-6.2 per cent).

Economists said the sustenance of this trend in industrial output needs to be monitored in the upcoming months, especially of consumption demand.

“Although IIP growth averaged 5.9 per cent in FY24, significant variations in its growth across months which ranged between 2.5 per cent (in November 2023) to 11.9 per cent (in October 2023), indicate that the factory output is still not stable and assured…the overall pattern of IIP growth continues to demonstrate unevenness and weakness in industrial recovery,” the note by India Ratings said.