Not losing steam: On latest industrial output estimates

The latest estimates of industrial production from the National Bureau of Statistics point to a broader loss of momentum in December, with headline output growth slowing to 4.3% yoy from 7.3% in November. While activity in all three components of the industrial production index – mining, manufacturing and electricity – remained flat or moderate, the largest sector, manufacturing, was the biggest drag, weighing almost 78%, as expansion accelerated to 2.6 % slowed 6.4% increase from previous month. Measured on a sequential or monthly basis, mining and manufacturing posted a slowdown, with only power growing 7.6% after the 1.5% decline in November. Manufacturing, where sequential growth slowed more than 2 percentage points to 4.7% from 6.9% in the previous month, was weighed down by three of the six usage-based sectors, including durable consumer durables, durable goods and capital goods. The three categories reflect a broader trend in the economy. For one, private consumption has yet to find a sustained footing despite a post-pandemic surge in pent-up spending, most visible in the service sector. Manufacturing of consumer durables shrank 10.4% yoy and 2.2% sequentially in December after rebounding on festival demand in November. Consumer staples saw a sharp sequential slowdown, with mom growth slowing to 7.4%.

Capital goods data point to continued uncertainty on the private sector investment front. Production of the equipment ordered as businesses expand or start up is struggling to maintain momentum, with output growth declining significantly both sequentially and year-on-year. In December, the segment’s year-over-year growth slowed to 7.6%, compared to 21.6% in November. On a month-to-month basis, the slowdown was more pronounced, with production barely up 0.2% after rising 13% in November. However, basic, infrastructure and construction commodities offer hope that, with the right policy actions, some positive momentum can be built upon. While the sequential pace of growth for the production of primary goods accelerated to 9.2% from 1.1%, the monthly increase for infrastructure and construction increased to 4% from 3.2% in November. With the RBI manufacturing outlook survey suggesting firms expect some moderation in order books and external demand in the current quarter, much will depend on whether policy remains supportive. The Union budget’s plan to give a boost to infrastructure through a significant increase in government investment spending should give construction products a big boost and is likely to impact other sectors in the coming months.