Industrial output grows 7.3% in June, fastest in nearly 2 years

India's industrial output growth accelerated to a 23-month high of 7.3 per cent in June, up from a downwardly revised 5 per cent in May, supported by a favourable base effect and broad-based expansion across all major sectors, according to data released by the National Statistics Office (NSO) on Tuesday.
According to official data,the headline Index of Industrial Production (IIP) stood at 123.1 in June, compared with 114.7 in the same month last year. All four key sectors—mining and quarrying, manufacturing, electricity and gas supply, and water supply, sewerage and waste management—registered positive growth during the month.Manufacturing emerged as the biggest contributor to the improvement, with output growth rising to 7.8 per cent in June from 5.2 per cent in May."Manufacturing output growth, in particular, saw a sharp uptick in June, contributing as much as 199 basis points of the 235 basis point increase in IIP growth relative to May," said Aditi Nayar, Chief Economist at Icra.
Within manufacturing, 19 of the 23 industry groups recorded positive growth compared with a year ago, indicating a broadening industrial recovery. Electrical equipment led the expansion with a 34 per cent increase, followed by motor vehicles, trailers and semi-trailers at 17.5 per cent and food products at 10.8 per cent. Petroleum products, chemical products, wearing apparel and wood products were the only segments to register contractions.
According to Megha Arora, Director at India Ratings & Research (Ind-Ra), the positive performance across 19 manufacturing sectors suggests that the industrial recovery is gradually becoming more broad-based.Electricity and gas supply remained the fastest-growing major sector, expanding 10.6 per cent in June after growing 10.3 per cent in May. Electricity generation from renewable sources increased 7.3 per cent, while non-renewable generation rose 13 per cent, lifting overall electricity output by 11.4 per cent.
Water supply, sewerage and waste management grew 6.1 per cent, improving from 5.5 per cent in May. Mining and quarrying also returned to positive territory, recording 1 per cent growth after contracting 1.4 per cent in the previous month.Under the use-based classification, four of the six segments recorded stronger growth than in May. Capital goods output expanded 14.2 per cent, marking the third consecutive month of double-digit growth, while infrastructure and construction goods output rose 7.5 per cent."This suggests investment activity remained robust during the month, benefiting from the easing of tensions in West Asia as well as the large rainfall deficit in June, which provided a longer window for activity," Nayar said.
Intermediate goods output increased 9.3 per cent, while primary goods grew 4.9 per cent. Consumer non-durables output rose 4.9 per cent, the fastest pace in six months, while consumer durables registered growth of 7.7 per cent.For the first quarter of FY27, IIP growth improved to 5.8 per cent from 3.4 per cent in the corresponding period of the previous fiscal."While higher volume growth augurs well, margin compression owing to higher input costs is expected to constrain industrial GVA growth in the quarter," Nayar noted.
Meanwhile, experts expressed concern that the prospect of a below-normal monsoon could weigh on rural consumption and add to inflationary pressures in the coming months. They also noted that although active military engagement in the Middle East has eased, persistent geopolitical tensions continue to fuel oil price volatility, which could squeeze corporate profit margins during the second half of the fiscal year.Looking ahead, India Ratings & Research expects industrial output growth to moderate to 5.4 per cent in July, primarily due to an unfavourable base effect in the manufacturing and electricity sectors.

(Business Correspondent)