The latest industrial production data shows India's factory output expansion slowed in June compared to the previous month. Overall growth of the index of industrial production (IIP), which measures factory output, stood at 4.2% for June, down from 6.2% in May.
The manufacturing sector, which has the largest weightage in IIP, grew 2.6% in June – the lowest pace in seven months. Manufacturing growth was 5% in May and 3.5% in June last year. weaker manufacturing led to the slower overall factory output growth in June.
However, mining sector growth accelerated to 10.3% in June from 6.6% in May, supported by higher coal demand. Electricity generation growth also rose to 8.6% compared to 4.2% in June 2023.
Among use-based categories, consumer durables grew at a faster 8.6% rate due to a low base effect, while consumer non-durables contracted 1.4% in June. Capital goods, a key capital expenditure indicator, grew 2.4%.
Most experts feel the manufacturing slowdown was mainly due to high inflation impacting demand. However, with inflation moderating and festive season demand expected to pick up in coming months, factory output growth is projected to recover from the second half of the financial year. The monsoon progress and government's capex push will also be important factors for industrial activity.
Going forward, timely policy support is crucial to strengthen the manufacturing sector recovery and boost overall industrial growth momentum. Private sector investment also needs to revive to sustain factory output expansion over the medium term.
