• India's industrial production contracted slightly in August 2024, but manufacturing sector growth offset this.
• Basic metals, electrical equipment, and chemical production drove manufacturing growth, while heavy rainfall impacted mining output.
• Despite the contraction, the Quick Estimates of IIP for August 2024 stood at 145.6, slightly lower than the previous year.
• The future outlook is positive, with expectations of an improvement in the YoY growth in the IIP.

India's industrial sector experienced a slight contraction in August 2024, with the Index of Industrial Production (IIP) decreasing by 0.1 per cent compared to July's growth of 4.7 per cent. This marginal contraction, however, was offset by a rise in the manufacturing sector, which saw a growth of 1 per cent, according to data released by the Ministry of Statistics.

The manufacturing sector's growth was driven by three key contributors. The manufacturing of basic metals saw a growth of 3.0 per cent, electrical equipment manufacturing grew by a significant 17.7 per cent, and the production of chemicals and chemical products increased by 2.7 per cent. These sectors played a crucial role in offsetting the overall contraction in the industrial production index.

However, the mining sector experienced a downturn, with the growth rate falling by 4.3 per cent. The Ministry of Statistics attributed this decline to the heavy rainfall experienced in August 2024. This adverse weather condition likely disrupted mining activities, leading to a decrease in output.

Indices and Quick Estimates of IIP

Despite the marginal contraction in the IIP, the Quick Estimates of IIP for August 2024 stood at 145.6, slightly lower than the 145.8 recorded in August of the previous year. The indices of industrial production for the mining, manufacturing, and electricity sectors for August stood at 107.1, 145.9, and 212.3, respectively.

The indices for primary goods, capital goods, intermediate goods, and infrastructure/construction goods for August were 141.6, 108.1, 162.2, and 180.2, respectively. Furthermore, the indices for consumer durables and consumer non-durables stood at 129.6 and 141.6, respectively.

Credit rating agency ICRA noted that while the marginal contraction of 0.1 per cent displayed by the IIP in August is not alarming, it largely reflects the temporary dousing of mining output, electricity demand, and retail footfalls by the heavier-than-normal rains, as well as an unfavourable base.

Future Outlook and Historical Context

The pace of expansion in finished steel consumption dipped in September 2024 compared to August, but it remained in double digits for the eighth consecutive month. ICRA's Chief Economist and Head, Research and Outreach, Aditi Nayar, anticipates the YoY (Year-over-Year) growth in India's IIP to improve to 3-5 per cent in September.

This is expected to be supported by a likely narrower contraction in electricity and mining output, as well as a favourable base, and a sharp uptick in the growth in GST e-way bills to 18.5 per cent in September from 12.9 per cent in August, supported by pre-festive stocking.

Historically, India's industrial production has seen fluctuations due to various factors such as weather conditions, global economic trends, and domestic economic policies. For instance, in the fiscal year 2022-23, high input prices hurt manufacturing, pulling down Q2 GDP growth to 6.3%. However, the government and financial institutions have often implemented strategies to counter these challenges and stimulate growth.