Data released by the National Statistical Office (NSO) on Tuesday showed the index of industrial production (IIP) rose an annual 19.6% in May, sharply higher than the downwardly revised 6.7% in April and lower than the 27.6% in May 2021. Growth in the April-May period was at 12.9% compared with an expansion of 67.3% in the year earlier period.
The manufacturing sector rose 20.6% compared with an expansion of 32.1% in the year earlier period while the electricity sector shot up 23.5% during the month compared with a growth of 7.5% in May 2021. The mining sector rose 10.9% compared with a growth of 23.6% in May 2021-22. The data is nearly in line with PMI surveys, which have been showing a robust pick-up in the crucial sector after the devastating impact of the curbs imposed to prevent the spread of Covid-19.
“The strong growth in industrial activity for the second month in a row boosts confidence in the overall economic growth. While the May growth figures have been pushed up by a favourable base, a sequential improvement across most categories is encouraging. IIP in May has recorded a growth of 1.7% when compared to May 2019 (pre-pandemic period),” said Rajani Sinha, chief economist at ratings agency CareEdge.
“While the manufacturing sector, which has the biggest share in IIP, continues to show improvement, the continued weakness in the consumer non-durables segment is concerning. Easing of some of the global commodity prices would bode well for the performance of the industrial sector going forward. However, challenges from slowing global growth would continue to persist,” said Sinha in a note.
The capital goods sector, which is seen as a barometer for industrial activity, rose 54% in May compared with a growth of 74.9% in May 2021 while the consumer durable sector grew by 58.5% compared with an expansion of 80.4% in the month a year earlier.
Some economists urged caution while interpreting the May numbers and said the future trajectory of growth would depend on how consumption fares against the backdrop of stubborn inflation.
“Overall growth should be viewed with caution even though the cumulative two-month performance of 12.9% is impressive. The future course will depend on how consumption fares, which will be driven by inflationary trends,” said Madan Sabnavis, chief economist at Bank of Baroda.
“As households spend more on necessities, there could be cut-back on non-discretionary spending as prices rise. This can be a stumbling block for industrial growth. The infra-based industries are likely to sustain with government capex leading the way. But to be sustained we need to see private investment also pick up which is still feeble today,” said Sabnavis.