Industrial output expands 3.1% in September on base effect, festivals

NEW DELHI: India’s industrial output rebounded in September, growing 3.1%, after contracting 0.1% in August – a 22-month low – driven by a favourable base effect and pre-festive season stocking that boosted manufacturing, official data released on Tuesday showed.

Economists, however, struck a note of caution in view of softening urban demand.

“There is improvement in the numbers, but IIP is extremely volatile,” said Gaura Sen Gupta, chief economist at IDFC First Bank.

Excluding August performance, the September output growth was at a nine-month low. It had increased by 6.4% in September 2023.

For the quarter ended September, IIP growth was at a seven-quarter low of 2.6% due to high base effect and weather vagaries. The growth was 4% in the first half of the current financial year, down from 6.2% in the corresponding period last year.

Festive Show
Manufacturing sector grew 3.9% in September.

This was due to stocking ahead of the festive season, said Paras Jasrai, senior economic analyst at India Ratings and Research. “The improvement in growth of consumer goods output is a positive for consumption demand in the economy,” he added.

According to use-based classification, consumer durables recorded the highest increase of 6.5%, followed by intermediate goods (4.2%), and infrastructure/construction goods (3.3%). The output of consumer non-durables grew 2%. “This indicates that rural demand has shown continued momentum,” SBI Research said in a note.

Gupta of IDFC First said consumption demand will get support from rural areas in the second half of the fiscal (post the harvest season) while urban demand will remain muted.

Madan Sabnavis, chief economist at Bank of Baroda, said a high stable growth can be expected in October and November based on good GST (goods and service tax) collections last month. “The growth in IIP will be around 4-5% in the coming months,” he said.

The rebound was supported by a 2% growth in the eight core industries, according to the data released last month. The eight sectors have a weightage of 40.27% in the Index of Industrial Production (IIP).

Electricity and mining recorded a growth of 0.5% and 0.2%, respectively. “The uptick was broad-based with all the use-based segments witnessing an improvement in their YoY growth in September 2024 vis-a-vis August 2024,” said Aditi Nayar, chief economist and head of research and outreach at ICRA.

Muted Outlook
ICRA forecasts the IIP growth in the range of 3-4% for October because of the balance between positive impact of the early onset of the festive season and an unfavourable base, Nayar said.

Ind-Ra, on the other hand, expects a growth of 2%.

“A broad-based recovery in consumption remains vital for the industrial activity going forward,” said rating agency CareEdge.