IIP records highest increase of 5.7 per cent in four months, yet challenges persist: Ind-Ra experts

New Delhi [India], April 13 : The Index of Industrial Production (IIP) for February 2024 has shown a significant uptick, registering a year-over-year (YoY) increase of 5.7 per cent, marking the highest surge in the index over the past four months.
This positive momentum follows a 3.8 per cent climb in January 2024, as per the first revision by the National Statistical Office (NSO).
Breaking down the data, the mining sector witnessed a substantial growth of 8 per cent YoY in February, compared to a 5.9 per cent increase in January.
Similarly, the manufacturing and electricity sectors displayed robust performances, with YoY growth rates of 5 per cent and 7.5 per cent, respectively.
This marks an improvement from January 2024, when manufacturing and electricity IIPs grew by 3.2 per cent and 5.6 per cent YoY, respectively.
Commenting on the latest figures, Sunil Kumar Sinha, Senior Director & Principal Economist, and Paras Jasrai, Senior Analyst at India Ratings and Research, provided insights into the industrial output trends.
Sinha and Jasrai noted that the 5.7 per cent YoY growth in February 2024 aligns with Ind-Ra's expectations, which projected a 5.5 per cent increase.
While manufacturing, the largest component of IIP, grew at a slightly lower rate of 5.0 per cent, the mining and electricity sectors recorded robust YoY growth of 8.0 per cent and 7.5 per cent, respectively.
They said, "The industrial output growth in February 2024 came in at 5.7 per cent yoy which is in line with Ind-Ra's expectations. Ind-Ra had projected IIP to come in at 5.5 per cent. Though manufacturing, the largest component of IIP, grew at lower 5.0 per cent, the other two components - mining and electricity - recorded a robust YoY growth of 8.0 per cent and 7.5 per cent respectively."
Analyzing the use-based classification, Sinha and Jasrai highlighted positive growth across various segments in February 2024, except for capital and consumer nondurables.
They noted that primary goods, intermediate goods, infrastructure goods, and consumer durables witnessed healthy growth during the period.
Despite the high base, the yoy growth in primary and infrastructure goods remained robust. However, consumer nondurables recorded a concerning negative growth of 3.8 per cent in February 2024.
Sinha and Jasrai emphasised, "At the use based classification level, except capital and consumer nondurables, other segments namely primary goods, intermediate goods, infrastructure goods and consumer durables witnessed healthy growth in February 2024. While YoY growth of primary is a three-month high, yoy growth of intermediate, infrastructure and consumer durable are a four-month high."
The commentary also shed light on the broader industrial recovery, highlighting both progress and challenges. While all use-based segments of IIP recorded output higher than pre-COVID levels in January 2024 after a gap of 33 months, they faltered again in February 2024. Notably, the output level of consumer nondurables in February 2024 remained lower than pre-COVID levels, indicating a lack of broad-based recovery in the industrial sector.
"No doubt, yoy growth of intermediate, and consumer durable benefited from the low base, the yoy growth in primary and infrastructure goods came despite a high base. The most disappointing performance came in the consumer nondurables which registered a negative growth of 3.8 per cent in February 2024", Sinha and Jasrai.
They added, "While infrastructure goods are benefiting on account of government spending on capex. Similarly, the consumer durables appear to be getting the benefit of the spending power of households belonging to upper-income bracket but the spending is not uniform across the months and hence the growth pattern of the consumer durable segment of IIP wobbles across the month."
Ind-Ra expects the YoY growth of IIP to come in at 5.5 per cent in March 2024, reflecting cautious optimism amidst ongoing challenges in achieving a more inclusive and sustainable industrial recovery.
Sinha and Jasrai stated, "Only in January 2024 all use-based segments of IIP after a gap of 33 months had recorded output higher than pre-COVID level but they faltered again in February 2024. The output level of consumer non-durables In February 2024 is lower than the pre-COVID level."
They added, "The overall pattern of IIP growth indicates that the industrial recovery is still not broad based and only select industrial segments are doing well. Ind-Ra expects yoy growth of IIP to come in at 5.5 per cent in March 2024."