India's Industrial output measured by Index of Industrial Production (IIP) moderated to 6.7% in July from 7.3% in June, primarily due to a contraction in mining output, even though manufacturing activity remained firm and investment-linked segments showed resilience.
According to the data released by the National Statistical Office (NSO) on Friday, mining and quarrying output fell by 0.9% in July. Manufacturing, which accounts for over 76% of the IIP, grew by 7.3%, while electricity and gas supply grew 8.7%.
“16% growth in capital goods production, 10% growth in intermediate goods, and 11% growth in consumer durables production reflect a broad-based strength in industrial activities in the country,” said Rajni Thakur, Chief Economist, L&T Finance.
Manufacturing growth was broad-based, with 19 of 23 industry groups recording positive growth. Electrical equipment output surged 28.3%, while motor vehicles, trailers and semi-trailers rose 22.2%. Other transport equipment grew 22% and machinery and equipment grew 12.1%.
Mining remained the principal drag. Non-metallic minerals fell 12.5% and fuel minerals declined 1.3%, although metallic minerals, including rare earth minerals, grew 24.3%. The four sectors that contracted were pharmaceuticals tobacco products, chemical products and wearing apparel. Tobacco products witnessed the highest contraction as it fell by more than 12% in July.
Consumer durables surged to an eight-month high of 10.5% from 10.3% in June. Passenger vehicle sales, an indicator of urban demand, grew 34.3% year-on-year compared with 24.1% in June, while tractor sales, a proxy for rural demand, rose 20.5% versus 11.9%. “Consumer non-durables, however, weakened, with IIP growth slipping to -1% from 5.6%, partly due to the statistical effect of a high base,” said Dharmakirti Joshi, Chief Economist Crisil Ltd.
For the April-July period, IIP growth stood at 6.3%, against 4% in the corresponding period last year. However, economists warned that growth is expected to moderate in the second half of the fiscal as the benefits of GST rationalisation fade. Below-normal rainfall could also weigh on the rural economy.