Consumer Durables News

Festive cheer for factory output in November

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Bengaluru: India’s industrial activity rebounded strongly to a five-month-high in November after posting a decline in the previous month, led by robust growth in manufacturing and in electricity, official data showed.

Economists attributed it to festival season demand boosting output and cautioned that the momentum was unlikely to sustain, with the pace of expansion likely moderating in the coming months.

The index of industrial production (IIP) grew by 7.1% in November compared to a 4.2% contraction in October on a year-on-year basis, the National Statistical Office said on Thursday.

The better-than-expected IIP data for November will contribute to the third quarter gross domestic product. Economists pointed out that industrial recovery is yet to stabilize and will continue to require more policy support, which may be seen in the upcoming Union budget for 2023-24.

“While we had expected the IIP performance to rebound, the print was much stronger than expected…with a reversal of the base effect related to an early festive season. However, the year-on-year growth of most available high frequency indicators has moderated in December 2022 relative to November 2022, partly reflecting an unfavourable base related to the post-festive season rebound seen in December 2021. In line with this, we expect the overall IIP growth to moderate to low single digits in December,” said Aditi Nayar, chief economist, ICRA Ltd.Manufacturing, which accounts for 77% of the index, reported a 6.1% growth in November compared to a 5.9% contraction in the previous month.

Mining output expanded by 9.7% in November, as against 2.4% in October. Electricity output rose by 12.7% during the month, as against 1.1% growth in October.

“While the progress is overall good with the IIP growing by 5.5% for the eight month period, it needs to be seen if this can be sustained as the festival season ends in December. Also the willingness of governments – both states and Centre to keep their capex rolling would largely drive future growth in the infra sector,” said Madan Sabnavis, chief economist, Bank of Baroda.

Capital goods grew by 20.7% in November compared to a 1.6% contraction in the previous month.

Consumer durables, representing elastic demand, snapped three months of contraction and grew by 5.1% in November. Consumer non-durables, which represents inelastic demand, grew by a sharp 8.9% in November, reversing four straight months of decline.

Hosever, “both consumer durables and non-durables are expected to face headwinds from erosion of household income due to high inflation and reversal of interest rate cycle going forward,” said Sunil Kumar Sinha, principal economist, India Ratings and Research. Only four of the 22 manufacturing sub-sectors— leather products, textiles, electrical equipment and pharmaceuticals— reported a contraction in output.

“Despite the encouraging IIP November numbers, we believe that the recovery in factory output has a long way to go. At the used-based classification, even now the output levels of two segments-intermediate goods and consumer durables is less than the pre-covid (February 2020) output levels. Therefore, we believe that the ongoing industrial recovery will continue to need more policy support,” added Sinha of India Ratings and Research.The national accounts data for the September quarter released last month saw growth slow to 6.3% led by dismal performance of the manufacturing sector, even as services sector recovery lent support.

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