Image used for representational purpose.
| Photo Credit: Reuters

India’s factory activity levels dropped to a three-month low in May, with output levels easing due to the heat wave that led a reduction in working hours amid intensive heat and a rise in production costs that flared up to a level only experienced once over the previous 21 months, as per the HSBC India Manufacturing Purchasing Managers’ Index (PMI).

The seasonally adjusted index, that reflects an uptick in activity levels when its score is over 50, declined from 58.8 in April to 57.5 in May.

Also read | Industrial output slows to 4.9% in March

Fresh orders for factories moderated to the lowest level since February, with election-related disruptions and competition affecting domestic demand sources, even as export orders grew at the fastest pace in over 13 years, as per the findings of the survey-based PMI. Despite the moderation, new orders and output rose at a substantial pace, the index statement noted.

While input costs and output charges headed north, producers expressed the highest level of positive sentiment towards growth prospects in nearly nine-and-a-half years, partly based on expectations that economic and demand conditions will remain favourable. This optimism triggered a nearly 19-year high for job creation in factories surveyed by S&P Global for compiling the PMI.

“Ongoing strong sales performances combined with upbeat growth forecasts fuelled job creation in May. Manufacturing employment rose to one of the greatest extents seen since data collection started in March 2005,” the statement said.

Jobs growth, parallel to rising material and freight costs, underpinned a quicker increase in input costs at goods producers. The overall rate of inflation remained below its long-run average, but picked up to its joint-highest since August 2022,” the PMI release stated.

Reacting to the rise in operating expenses, firms raised own selling prices in May at a pace that was the fastest in eight months. However, this price hike only constituted part of the surge in production costs leading to a squeeze in margins for manufacturers, HSBC’s global economist Maitreyi Das pointed out.

“The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes,” Ms. Das said.

Photo used for representation purpose only.

India’s industrial output growth slowed to 4.9% in March from 5.6% in February, as per the National Statistical Office, with base effects from last March when output had tanked 1.9%, boosting the uptick. Mining output slid to a 19-month low growth of 1.2%, while electricity generation rose 8.6% from a 1.6% contraction in March 2023.

Manufacturing, which constitutes 77.6% of the Index of Industrial Production (IIP), grew at a five-month high pace of 5.2% in March, relative to a mild 1.5% uptick in the same month last year. Manufacturing growth for February was revised downwards to 4.9% from 5% estimated earlier, along with the month’s IIP growth which was downgraded from 5.7%.

Overall industrial output grew 5.8% in 2023-24, a tad higher than the 5.2% rise in the previous year, with manufacturing output growing 5.5% compared with 4.7% in 2022-23 and mining output accelerating by 7.5% last year from a 5.8% rise in the preceding year. Electricity generation grew 7.1% in 2023-24, easing from an 8.9% surge in the previous year.

Seven of 23 major manufacturing segments recorded a contraction in March, but as many as ten segments reported a drop in output through 2023-24, including wearing apparel (-14.2%), computers and electronics (-11.4%), furniture (-6.9%), wood products (-5.9%), chemicals (-1.7%) and leather (-1.1%).

Consumer goods remained the weakest performers through last year, despite beneficial base effects. Consumer durables grew the weakest at 3.6% compared with a meagre 0.6% rise in 2022-23, while non-durables rose 4% vis-à-vis a 0.7% uptick in the previous year.

In March, consumer durables output recorded the sharpest surge for the second month in a row, rising 9.5%, albeit over an 8% contraction in March 2023. In February, they had grown 12.3% relative to a 4.1% contraction a year ago. Consumer non-durables broke a two-month streak of contraction to rise 4.9%, but again over a weak base from March 2023, when they shrank 1.9%.

“The consumption scenario remained mixed last year with urban demand showing resilience while rural demand continued to lag,” said Rajani Sinha, CareEdge Ratings’ chief economist. While hopes of a good monsoon, moderating inflation, and pick-up in rural demand are positives, a broad-based and durable improvement in consumption remains the key monitorable this year, she stressed.

Infrastructure and construction goods continued to record healthy growth at 6.9% in March, while capital goods growth picked up to 6.1% from just 1.2% in February. Intermediate goods and primary goods rose 5.1% and 2.5%, respectively.

Over the full year gone by, Infrastructure and Construction goods recorded the strongest growth of 9.6% over an 8.4% rise in 2022-23, followed by capital goods which grew 6.2% compared with a 13.1% rise in the previous year. Primary and intermediate goods grew 6% and 5.2%, respectively.

Although a majority of high-frequency indicators have seen an uptick in April over March trends, ICRA chief economist Aditi Nayar said she expects industrial output growth to slow to around 3% to 4% in April owing to base effects as the same month had seen a 4.6% uptick in 2023.

In absolute terms, the industrial output index was up 8.22% from February with a sequential rise in output recorded in Manufacturing, Mining and Electricity, as well as the six end-use-based classifications of factory output.

Electricity generation rose 8.6% in march 2024 from a 1.6% contraction in March 2023. File
| Photo Credit: The Hindu

India’s industrial output growth slowed to 4.9% in March from 5.6% in February, as per the National Statistical Office, with base effects from last March when output had tanked 1.9%, boosting the uptick. Mining output slid to a 19-month low growth of 1.2%, while electricity generation rose 8.6% from a 1.6% contraction in March 2023.

Manufacturing, which constitutes 77.6% of the Index of Industrial Production (IIP), grew at a five-month high pace of 5.2% in March, relative to a mild 1.5% uptick in the same month last year. Manufacturing growth for February was revised downwards to 4.9% from 5% estimated earlier, along with the month’s IIP growth which was downgraded from 5.7%.

Overall industrial output grew 5.8% in 2023-24, a tad higher than the 5.2% rise in the previous year, with manufacturing output growing 5.5% compared with 4.7% in 2022-23 and mining output accelerating by 7.5% last year from a 5.8% rise in the preceding year. Electricity generation grew 7.1% in 2023-24, easing from an 8.9% surge in the previous year.

Seven of 23 major manufacturing segments recorded a contraction in March, but as many as ten segments reported a drop in output through 2023-24, including wearing apparel (-14.2%), computers and electronics (-11.4%), furniture (-6.9%), wood products (-5.9%), chemicals (-1.7%) and leather (-1.1%).

Consumer goods remained the weakest performers through last year, despite beneficial base effects. Consumer durables grew the weakest at 3.6% compared with a meagre 0.6% rise in 2022-23, while non-durables rose 4% vis-à-vis a 0.7% uptick in the previous year.

In March, consumer durables output recorded the sharpest surge for the second month in a row, rising 9.5%, albeit over an 8% contraction in March 2023. In February, they had grown 12.3% relative to a 4.1% contraction a year ago. Consumer non-durables broke a two-month streak of contraction to rise 4.9%, but again over a weak base from March 2023, when they shrank 1.9%.

“The consumption scenario remained mixed last year with urban demand showing resilience while rural demand continued to lag,” said Rajani Sinha, CareEdge Ratings’ chief economist. While hopes of a good monsoon, moderating inflation, and pick-up in rural demand are positives, a broad-based and durable improvement in consumption remains the key monitorable this year, she stressed.

Infrastructure and construction goods continued to record healthy growth at 6.9% in March, while capital goods growth picked up to 6.1% from just 1.2% in February. Intermediate goods and primary goods rose 5.1% and 2.5%, respectively.

Over the full year gone by, Infrastructure and Construction goods recorded the strongest growth of 9.6% over an 8.4% rise in 2022-23, followed by capital goods which grew 6.2% compared with a 13.1% rise in the previous year. Primary and intermediate goods grew 6% and 5.2%, respectively.

Although a majority of high-frequency indicators have seen an uptick in April over March trends, ICRA chief economist Aditi Nayar said she expects industrial output growth to slow to around 3% to 4% in April owing to base effects as the same month had seen a 4.6% uptick in 2023.

In absolute terms, the industrial output index was up 8.22% from February with a sequential rise in output recorded in Manufacturing, Mining and Electricity, as well as the six end-use-based classifications of factory output.