Electricity production jumps, pulls up May industrial growth to 5-month high of 5.1%

According to Megha Arora, Director at India Ratings & Research, the impact of the West Asia crisis was “visible in continued gas supply contraction”. In April, gas supply had fallen 7.7%.

Meanwhile, the manufacturing sector – which accounts for more than three quarters of the IIP – saw its output grow by 5.5% in May, down from an increase of 6.1% in April. Mining output fell again, this time by 1.6%, while output of the ‘water supply, sewerage & waste management’ category increased by 5.5% year-on-year.

Of the 23 categories within the manufacturing sector, 16 saw a year-in-year rise in their production in May. “Like previous months, electrical equipment, and motor vehicles, trailers and semi-trailers continued to surge at 20.8% and 14.5%, respectively. Electrical equipment continued to report growth due to small transformers, circuit breakers, and others,” Arora of India Ratings noted, adding that traditional export sectors such as leather and apparel contracted.

In terms of use-based classification of the goods produced, output of primary goods was 2.6% higher in May, while that of capital goods rose 12.9% and intermediate goods 5.8%. Infrastructure goods’ production was 5.9% higher.

On the consumer front, durable goods posted a growth of 7.2% in May and non-durables 3.6%.

According to Rajani Sinha, Chief Economist at CareEdge Ratings, while the uptick in production of consumer durables and non-durables is positive, the durability of recovery needs to be monitored amid the ongoing geopolitical volatility, inflationary pressures, and slow progress of the monsoon.

Moving forward, even though the decline in global energy prices is a source of relief, economists see some downside risks to industrial production as manufacturing and construction face cost pressures for imported inputs. “Even if shipping resumes through the Strait of Hormuz, repairs to the damaged oil and gas infrastructure in West Asia will take time and elevated war risk premiums, among other factors, would keep pressure on input costs,” said Dipti Deshpande, Principal Economist at Crisil.

The weak monsoon is another big risk for the industry as it could dampen rural demand, Deshpande said.

The May print is the second number in the new IIP data series which has 2022-23 as the base year and updates various methodologies used in the compilation of the index and broadens the coverage of the economic indicator.

The data for May incorporates another change, with MoSPI replacing the Wholesale Price Index with the Output Producer Price Index to deflate 234 of the 463 items in the IIP where the output is collected in value, and not volume, terms.

“This has led to material changes in growth across segments such as manufacturing and is also likely to lead to revisions in the GDP data,” said Rahul Agrawal, Principal Economist at ICRA.