Index of Industrial Production
Context:
- Declining industrial output growth indicates a lack of trust among consumers.
Introduction:
- The Index of Industrial Production, or IIP, increased by 5.8% in September, which is about half of the gain of 10.3% in August, the 14-month high.
- The majority of economists predicted that the month that ushers in India’s busy holiday season would see an increase of 7% to 8%.
- September’s factory output growth was 2.4% lower than August’s, but it was still the worst in three months.
About IIP:
- The so-called Index of Industrial Production (IIP) is a measure of manufacturing activity across several economic sectors.
- In comparison to the reference period, the industrial production for the period under review—typically a month—is measured by the IIP number. IIP is a crucial economic metric for the economy’s manufacturing sector.
- Six weeks elapse between the end of the reference month and the release of the IIP index data. The base year used to construct the IIP index is presently 2011–2012.
- For the Index of Industrial Production India, CSO compiles and publishes IIP data on a monthly basis. The Ministry of Statistics and Programme Implementation (MoSPI) oversees the Central Statistical Organisation, or CSO. The PIB website also has access to the IIP index data when it becomes available.
What worries me more is:
- Only seven of the twenty-three manufacturing sectors had experienced a decline in August; by September, that number had risen to nine, with the production of clothing falling by nearly 18% and furniture by 20%.
- More concerning is the fact that 12 industries had a consecutive drop in production in September, dispelling expectations that businesses would increase inventory in advance of holiday spending. Consumer durables and non-durables, which were up just 1% and 2.7%, respectively, on top of a 5.5%+ decline last September, demonstrate producers’ lack of faith in customers’ whims.
- Consumer non-durables, or what are generally referred to as fast-moving consumer items with lower ticket prices, saw a 3.5% sequential decline in output, the lowest since November 2022. September’s electricity generation also decreased 6.6% sequentially, maybe as a result of August’s heavier rains.
Considering the bigger picture:
- Overall, according to September’s IIP, factory output growth averaged 7.4% in the second quarter, increasing the growth to 6% in the first half of 2023–2024.
- This might still be a good thing given the central bank chief’s expectations that Q2 GDP growth will exceed their official 6.5% estimate. When broken down, however, the IIP shows an imbalance in the economy and a new turn in the path.
- This September, the output of consumer goods increased by just 0.3% over pre-COVID-19 levels; the only use-based group to register a decline this year was durables. In contrast, investment-linked industries including capital goods and infrastructure/construction products have had stronger output growth this year, rising by 6.7% and 12.1%, respectively.
- Throughout the first half of the year, public investment in infrastructure industries has increased the output of goods like steel and cement, but rising inflation has reduced everything except the inclination of wealthy consumers to spend.
The next step:
- Future capital expenditures that were front-loaded this year may slow down, and more revenue expenditures in advance of the Lok Sabha election are probably warranted, particularly given the recent price volatility of volatile commodities like food, urea, and fuel.
- The fact that September’s output of building and infrastructure items was the lowest since March 2023 raises the possibility that one boom wave is ebbing, which makes the other, more fragile consumption story even more important to follow.
