On the face of it, up 5.2% India’s Index of Industrial Production (IIP) This January is a good new year for a metric that saw two months of contraction in the previous five months. With the Gross Value Added (GVA) in the economy by the manufacturing sector contracting by 3.6% in the July to September 2022 and 1.1% in the October to December 2022 quarters, one would expect the last quarter of this financial year to reverse this trend. Will do , To that end, January’s factory production numbers provide moderate, though not necessarily substantial encouragement. For one, the increase is nearly double the 2.6% average increase in the previous quarter and marks a 4.7% improvement from the output level in December 2022. Double-digit growth in electricity and capital goods helped IIP grow by 9.6%. 8%-odd growth in primary articles and in mining and infrastructure goods (three-month lows for both). Manufacturing grew 3.7%, slightly better than December’s 3.1% growth, but 10 of the 23 tracked sub-sectors registered contraction in output and five of them slipped more than 10% from January 2022 levels. Textile factories reported a decline of over 11% in production, wood products declined by 12.6%, apparel units decreased production by 22.3%, while computer and electronics manufacturing declined by 29.6%. Seven sectors, including electrical equipment, computers, pharma and employment-intensive textiles, apparel and leather, have seen a decline in output in the first 10 months of 2022-23.
Weak global demand is certainly hurting factory order books and the increasingly accommodative monetary policy outlook does not augur well for important markets for Indian exporters such as the United States. On Friday, when the IIP numbers were released, global oil prices fell another 1.3% as markets expect rate hikes by central banks to hurt demand (and export orders). Of equal concern to members of the Reserve Bank of India’s Monetary Policy Committee (MPC), when they meet in early April, will be how domestic demand is faring. Two members of the MPC had already expressed concern about interest rates being too high at its February meeting – one terming India’s growth as ‘extremely fragile’. The signs of consumer goods production in the January IIP are not very encouraging. While consumer durables production contracted sharply year-on-year for the second consecutive month, it was down about 15% from pre-Covid levels. Non-durable consumption goods grew by 6.2%, the slowest pace in three months, with overall output this year still below 2021-22 levels. A K-shaped recovery may be ruled out officially, but the industry is pointing to lower incomes and a slower return to rural areas. Still all is not well.