The latest industrial production estimates from the Office for National Statistics indicate an overall loss of momentum in December, with overall output growth slowing to 4.3% year-on-year from November’s pace of 7.3%. While activity in all three components of the index of industrial production — mining, manufacturing and electricity — was unchanged or moderate — the largest manufacturing sector, with a weighting of nearly 78%, was the biggest drag, as expansion slowed to 2.6% from 2.6%. 6.4% increase over the previous month. Assessed on a sequential or month-on-month basis, mining and manufacturing registered a deceleration, with only electricity growing by 7.6% in the wake of November’s contraction of 1.5%. Manufacturing, where sequential growth slowed by more than 2 percentage points to 4.7% from the previous month’s 6.9%, was weighed down by three of the six use-based sectors including consumer durables, consumer non-durables and capital goods. The three categories reflect a broad trend in the economy. For one, private consumption is yet to gain a sustainable position despite a post-pandemic increase in spending most visible in the services sector. Consumer durables production shrank 10.4% year-on-year and 2.2% sequentially in December after rebounding in November on the back of festive demand. Non-durables experienced a sharp sequential deceleration, rising 7.4% month-on-month.
The capital goods data points to continued uncertainty on the private sector investment front. Plant and machinery production ordered when expanding or starting enterprises are struggling to keep pace, with production growth declining both sequentially and year-over-year. In December, the growth rate in this segment declined to 7.6% from a year earlier, compared to 21.6% in November. Month-on-month, there was a slowdown in output with barely 0.2% growth after expanding 13% in November. However, primary and infrastructure and construction goods provide hope that some positive momentum can be built with the right policy measures. While the sequential pace of primary goods output increased by 1.1% to 9.2%, the month-on-month advance for infrastructure and construction rose to 4% from November’s 3.2%. The RBI’s survey of manufacturing sector outlook indicated that companies are expecting some moderation in order books and overseas demand in the current quarter, much will depend on the policy being supportive. The Union Budget’s plan to boost infrastructure through a substantial increase in government’s capital expenditure should give a big boost to construction materials and is likely to follow other sectors in the coming months.