At 7.1%, India's factory output jumps to eight-month high in April

Electricity output rose to double digits in April

India’s factory output growth accelerated to an eight-month high at 7.1 per cent in April on the back of a lower base, according to data released by the National Statistical Office. However, sequentially, the index of industrial production (IIP) contracted 9.2 per cent during the month.

Electricity output increased in double digits (11.8 per cent) in April, while mining and manufacturing rose at 7.8 per cent and 6.3 per cent, respectively.

According to use-based classification, all sectors, except consumer non-durables, grew at a robust pace. Capital goods representing investment demand in the economy grew 14.7 per cent while consumer non-durables registered only 0.3 per cent growth during the month, signaling weak rural demand. Consumer durables (8.5 per cent) registered positive growth after six-months of consecutive contraction. 

Madan Sabnavis, chief economist at Bank of Baroda, said the IIP growth number buttresses the confidence given by the Purchasing Managers’ Indices and goods and services tax collections during this challenging period. “We need to see if this momentum can be sustained going forward as it would be a prerequisite for growth in GDP to be sustained at over 7 per cent this year. Sustenance will be the mantra because the fourth quarter also saw corporates finish the year on a good note. The demand from consumers and investment by corporates will hold the clues in the coming months,” he said. 

Many professional forecasters have in recent months pared down their growth forecasts for India. While the Reserve Bank of India (RBI) has retained its earlier growth projection of 7.2 per cent for FY23, the Organization for Economic Cooperation and Development (OECD) on Wednesday slashed India’s FY23 growth forecast to 6.9 per cent from 8.1 per cent estimated earlier, holding that the country had been adversely affected by Russia’s invasion of Ukraine. Fitch Ratings on Friday, while upgrading India’s sovereign rating outlook to stable from negative, cut growth estimate to 7.8 per cent for FY23 from 8.5 estimated earlier, holding that inflationary impacts of the global commodity price shock are dampening some of the positive growth momentum.  

India’s retail inflation jumped to an eight-year high at 7.8 per cent in April on the back of rising food and fuel prices. Most analysts expect retail inflation to remain above 7 per cent in May, the data for which will be released on Monday. The RBI on Wednesday increased policy rates for the second time in just over a month by 50 basis points to 4.9 per cent to curb rising inflationary expectations. Many commercial banks followed the rate action by increasing lending rates on Thursday, which is expected to hurt fledgling economic growth momentum.

Sunil Kumar Sinha, principal economist at India Ratings and Research, said it is still too early to rejoice April performance as the resilience of the industrial sector amidst raging inflation and adverse global geopolitical situation.

“A comparison of the latest data with the pre-Covid production level (February 2020) indicates that the aggregate industrial output is higher than the pre-COVID level albeit by just 0.7 per cent. However, the output levels of three use-based segments viz. capital goods, consumer durables and consumer non-durables are still below the pre-Covid level,” he said. 

Sinha said he expects IIP to clock high single-digit growth in May. “Electricity output is expected to clock double-digit growth in May on account of power demand driven by scorching summer. The coal output was up 33.9 per cent year-on-year in May, and is expected to keep the momentum in the mining sector. As the economic activities normalise further, the capital and infrastructure goods may also get impetus due to the ongoing capex by the union and state government,” he said.