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Factory output slid to a three-month low of 3.7 per cent in June, primarily due to a slower growth in manufacturing output and a high-base effect, according to data released by the National Statistical Office (NSO) on Friday.
Manufacturing, which accounts for 77.6 per cent of the weight of the Index of Industrial Production (IIP), grew by 3.1 per cent in June as against 12.9 per cent in the year-ago period and 5.8 per cent in May.
In absolute terms, the IIP stood at 143.4 in June, up from 138.3 in the year-ago period, but was sequentially lower than 145.1 seen in May this year. Manufacturing output stood at 141 in June, up from 136.8 in the year-ago period but lower than 142.4 in May.
According to the IIP data, 14 out of the 23 sectors in manufacturing registered a contraction in June, with food, textiles and electronics amongst the significant non-performers. In terms of the use-based industries, infrastructure industries recorded better output with growth of 11.3 per cent while consumer durables fell by 6.9 per cent. However, there is still stagnation in consumption, with the first quarter consumer goods output showing a contraction of 2.8 per cent.
Cumulatively, for the quarter factory output grew 4.5 per cent compared with 12.9 per cent growth in the year-ago period. In 2022, growth was pushed up by the base effect in 2021 when the second phase of lockdown was imposed during the Covid-19 pandemic.
Experts said the third quarter will be crucial for the manufacturing sector and factory output is expected to be around 5 per cent in the near term.
“The third quarter will be crucial for the manufacturing sector as this would be the time when the festival demand would add to growth. Here both rural and urban demand would matter. Inflation has definitely come in the way of real purchasing power and while core inflation has been stable, food inflation has come in the way,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
“It needs to be seen how growth in industry would perform in the coming months. Presently, we are witnessing growth in only pockets which are related to infra push which is being given by the government,” he said.
Even as the industrial output was 6.9 per cent higher than the pre-Covid level (February 2020), according to India Ratings, the recovery continues to be fragmented as out of the 23 manufacturing sub-sectors, the production of only 13 sub-sectors was above their respective pre-Covid level output in June 2023.
“The high frequency indicators such as coal production, power demand, steel production etc do indicate a modest pace of industrial activity in July 2023. However, sustained government capex is expected to continue to provide support to infrastructure and capital goods sectors. The ongoing pattern of recovery is still not broad-based and may take longer as a spike in inflation in July and August 2023 is expected to adversely impact consumer goods production,” said Sunil Kumar Sinha, Senior Director and Chief Economist at India Ratings and Research.
