April 2023 IIP bounces to 4.24%, helped by manufacturing

13 Jun 2023 , 12:31 PM

However, in the month of March 2023, there was a sharp fall in IIP to 1.14%, largely led by a fall in manufacturing. Clearly the global slowdown concerns were translating into weak exports, which was crimping demand for Indian goods and services globally. The net result was a slowdown in manufacturing. The good news is that IIP has bounced back in April 2023 and this time around it has been led by manufacturing. For April 2023, the IIP growth stood at 4.24%; still below 5% but much better than March. 

To an extent, the low base of April 2022 at 6.66% must have lent a helping hand to the bounce in IIP in April 2023. However, the IIP growth in May 2022 and June 2022 stood at 19.72% and 12.62% respectively. On this much higher base, the IIP would surely have some trouble growing at this clip in the next two months. IIP growth tends to be very vulnerable to the base effect and that could manifest as a challenge in the coming two months.

IIP bounces to 4.24% in April from March lows

IIP is normally announced with a lag of one month; which means the April IIP number gets reported in mid-June. The fall in IIP to 1.14% in March 2023 must be seen in the context of the base month IIP. In March 2022, the IIP growth was fairly low at 2.2%. In comparison, the April base was at 6.66%, but still the IIP growth was at 4.24% in April 2023. Hence, the impact of high base in May and June may be relatively muted. That is something to watch out for, since IIP has a key role to play in overall GDP.

Month	IIP Growth (%)
Apr-22	6.66%
May-22	19.72%
Jun-22	12.62%
Jul-22	2.21%
Aug-22	-0.68%
Sep-22	3.32%
Oct-22	-4.07%
Nov-22	7.58%
Dec-22	4.68%
Jan-23	5.17%
Feb-23	5.56%
Mar-23	1.14%
Apr-23	4.24%

Data Source: MOSPI

IIP revisions and how first and second estimates pan out

Typically, each IIP announcement goes through two revisions. The first revision takes place after a month while the second and final revision takes place after 3 months. These revisions factor in a lot of additional data flows which take time to reach the central database. What is important is that the revisions (depending on whether it is positive or negative) gives some broad guidance for current IIP revisions and future outlook.

In the current IIP report, January 2023 IIP went through final revision while March 2023 IIP underwent its first revision. The first revision for March 2023 is 61 bps higher from 1.14% to 1.75%. In addition, the final revision of January 2023 IIP is higher by 64 bps from 5.17% to 5.81%. Overall, the revisions have been positive and this does raise hopes that further upgrades in April 2023 also.

How did the sectoral break-up look like in April 2023?

How does the sectoral or thematic break-up of the IIP look like in April 2023. Mining growth for April 2023 was at 5.1% compared to 6.8% in the month of March 2023. Manufacturing grew by a healthy 4.9% in April 2023 compared to a tepid growth of just 0.5% in April 2023. Finally, Electricity contracted by -1.1% in April 2023 compared to a sharper contraction of -1.6% in March 2023. Overall growth in IIP for April 2023 was relatively strong at 4.24%, compared to 1.14% in March 2023. Compared to March 2023, manufacturing IIP growth was very strong in April 2023 and that made the big difference. That is largely due to the fact that nearly 77.63% weight of the IIP basket comes from manufacturing alone.

Which products led and lagged the IIP basket in April 2023?

IIP growth of +4.24% for April 2023 is sharply higher compared to March 2023, although lower than the average IIP growth of 5% between November 2022 and February 2023. Most of the high frequency data points like GST collections, PMI index, freight and e-way bills are still robust; so, the undertone for April still looks extremely positive. Let us first focus on the positive triggers for IIP in April 2023. Products that triggered the positive surge in IIP for the month include Pharmaceuticals (+24.5%), transport equipment (+11.5%), Machinery & equipment (+10.6%), basic metals (+10.2%), electrical equipment (+9.5%) and printing & media (+6.9%).

Now for the IIP depressants, and there were a good many of them with substantial negative growth. Among the key items that pulled down IIP growth in April 2023 were Furniture (-29.4%), wearing apparel (-29.1%), tobacco products (-21.3%), wood products (-15.9%) and electronic products (-11.1%). If you look at the mix of the IIP depressants, it is a clear pointer towards the pressure on the exports driven segments. That is indicative of the global uncertainty and recession fears; especially with rising probability of global recession.

How does the use-based perspective look like for April 2023? In terms of user groups, Primary Goods grew 1.9%, Capital Goods grew 6.2%, Intermediate goods grew 0.8% and infrastructure goods grew by 12.8%. However, consumer durables demand contracted -3.5% while consumer non-durables expanded by 10.7%. The damage to consumer demand of the last few months is finally beginning to change for the better.

A look at the high frequency IIP data for April 2023

We can break up the 4.24% yoy IIP growth for April 2023 into mining, manufacturing, and electricity. But, more importantly, it is the high frequency month-on-month growth that gives a clear picture of short-term momentum in IIP basket. The table below captures the sequential IIP performance of April 2023 over March 2023 in the last column.

Weight	Segment	IIP Index Apr-22	IIP Index Apr-23	IIP Growth Over Apr-22	IIP Growth (HF) Over Mar-23
0.1437	Mining	116.60	122.50	+5.06%	-20.56%
0.7764	Manufacturing	131.60	138.10	+4.94%	-6.12%
0.0799	Electricity	194.50	192.30	-1.13%	+2.29%
1.0000	Overall IIP	134.50	140.20	+4.24%	-7.40%

Data Source: MOSPI (HF refers to high frequency)

The high frequency MOM shift in the IIP is a key indicator that captures the short term triggers and momentum in industrial growth. In February, the high frequency IIP growth had dipped into negative after 3 consecutive months of positive high frequency IIP growth. However, March 2023 saw a bounce back only to again slip into the negative in the month of April. High frequency being positive in 4 of the last 6 months is a strong positive signal. That is something that is also ratified by high frequency data points like e-way bills, GST collections and PMI manufacturing.

Will the bounce in IIP impact the RBI monetary stance?

This question becomes important since the RBI has been on a rate pause since February, which was the last rate  hike. April and June policies had seen a pause in rates.

• One thing we have seen in the last few months is the RBI focusing its monetary policy more on inflation and less on growth. With inflation trending lower towards the 4% mark, RBI would not give too much focus to IIP; averaging 5% since November.

   

• However, the RBI would be closely watching the message coming from the high frequency IIP shift since that captures the shorter term shifts better. For now, the concerns of industry have been addressed through the pause in rates.

The good news is that the IIP numbers have bounced back sharply. However, a few swallows do not a summer make; and the RBI would be fully aware of that. For now, its monetary policy would be guided by inflation concerns on one side and recession worries on the other. The true picture of Indian monetary policy trajectory, perhaps, likes somewhere in between.