June 2023 IIP tapers to 3.69%, due to stress on manufacturing output

14 Aug 2023 , 10:03 AM

It must be remembered here that IIP is reported with a lag of one month; which means the June IIP growth gets reported in mid-August and the May IIP growth gets reported in mid-July. Let us first look at the IIP figure on a month-wise basis for the last one year.

IIP growth tapers in June 2023 compared to May

The table below captures the monthly IIP growth number captured on a yoy basis. The base effect plays a key role in the IIP number

Month	IIP Growth (%)
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	6.01%
Mar-23	1.90%
Apr-23	4.46%
May-23	5.30%
Jun-23	3.69%

Data Source: MOSPI

The base of June 2022 is much lower than the base of May 2022, so even the lower growth of June 2023 is actually magnified. But, let us first look at the revisions for the previous month and for the 3-months back IIP number. The IIP numbers go through two revisions. A month after the IIP announcement it goes through the first revision and 3 months later it goes through the final revision. The March 2023 IIP has undergone a final upward revision of 15 basis points from 1.75% to 1.90%. At the same time the May 2023 IIP has also undergone the first upward revision of 8 basis points from 5.22% to 5.30%. Revisions are positive moves since they give the hope that even the June IIP can be eventually revised upwards. But, let us now turn to the break-up of the IIP growth for June 2023 with a 4-month comparison.

June 2023 IIP break-up across mining, manufacturing, and electricity

IIP is normally a basket of products but it is broadly classified into 3 broad categories, viz. mining, manufacturing, and electricity. The table below captures the gist of the June 2023 IIP growth and compares with previous 3 months. Here is the product-wise break-up.

Product Basket	Weights	Mar-23	Apr-23	May-23	Jun-23
Manufacture of food products	5.30	-2.2	2.6	0.1	-3.8
Manufacture of beverages	1.04	6.4	-9.7	-4.4	-0.9
Manufacture of tobacco products	0.80	-11.0	-21.3	-4.9	-16.6
Manufacture of textiles	3.29	-7.0	-6.4	-3.2	-0.3
Manufacture of wearing apparel	1.32	-30.6	-29.1	-20.9	-23.3
Manufacture of leather and related products	0.50	-6.7	-8.1	1.6	7.8
Manufacture of wood products	0.19	-8.5	-15.6	-12.7	-12.6
Manufacture of paper products	0.87	-3.5	-6.7	-9.8	-1.8
Printing and reproduction of recorded media	0.68	3.9	6.9	0.6	-11.4
Manufacture of coke and refined petroleum products	11.77	1.4	-1.8	2.6	3.1
Manufacture of chemical products	7.87	7.4	2.4	-1.5	-2.2
Manufacture of pharmaceuticals	4.98	-3.1	24.2	20.9	6.7
Manufacture of rubber and plastics products	2.42	1.1	0.4	7.1	1.0
Manufacture of other non-metallic mineral products	4.09	-1.0	6.8	10.0	4.6
Manufacture of basic metals	12.80	7.4	11.9	9.0	13.6
Manufacture of fabricated metal products	2.65	-2.6	-1.5	4.4	-5.4
Manufacture of computer, electronic and optical products	1.57	-28.1	-12.1	-5.7	-32.0
Manufacture of electrical equipment	3.00	15.3	16.5	8.1	10.9
Manufacture of machinery and equipment	4.77	10.4	8.7	9.7	5.5
Manufacture of motor vehicles, trailers, and semi-trailers	4.86	6.4	3.4	13.4	7.9
Manufacture of other transport equipment	1.78	9.6	11.6	10.9	-0.1
Manufacture of furniture	0.13	-9.3	-29.4	-13.3	-12.6
Other manufacturing	0.94	-14.0	-4.5	-0.5	-10.6
MINING	14.37	6.8	5.1	6.4	7.6
MANUFACTURING	77.63	1.5	5.2	5.8	3.1
ELECTRICITY	7.99	-1.6	-1.1	0.9	4.2
OVERALL IIP	100.00	1.9	4.5	5.3	3.7

Data Source: MOSPI

The latest month showing the June 2023 IIP numbers has been shaded for clarity purpose. Here are some of the major takeaways from the IIP break-up of June 2023.

• The lower IIP of 3.7% in June 2023, compared to 5.3% in May 2023, was largely triggered by a fall in manufacturing output. For instance, Mining output for June 2023 grew at 7.6% and electricity at 4.2% compared to 6.4% and 0.9% respectively in May 2023. However, over the previous month, the manufacturing IIP fell from 5.8% to 3.1%. Obviously, with manufacturing having a weight of 77.63% in the IIP basket, that predominance of manufacturing is likely to remain.

   

• In the month of June, the products that saw the highest positive growth in products like basic metals, electrical equipment, and motor vehicles. The products that saw the sharpest fall in growth on a yoy basis included computers & electronics, wearing apparel, tobacco products, and furniture. 

Overall, mining and electricity did better than expected in June 2023 but manufacturing lagged. Most of the pressure on manufacturing came from sectors that are export oriented like textiles, computers, basic metals etc. The global slowdown is clearly taking its toll.

What we read from the annual IIP data so far

The table below captures the IIP growth on an annual basis over the last 4 financial years. The overall IIP product basket is not only broken up in terms of the 3 broad classifications of mining, manufacturing, and electricity, but also on a product-wise basis.

Product Basket	Weights	2019-20	2020-21	2021-22	2022-23
Manufacture of food products	5.30	2.0	-2.7	5.9	3.8
Manufacture of beverages	1.04	-2.6	-25.8	11.5	19.9
Manufacture of tobacco products	0.80	1.3	-14.3	8.7	-0.6
Manufacture of textiles	3.29	-2.5	-21.3	29.3	-8.7
Manufacture of wearing apparel	1.32	0.3	-29.9	27.4	-7.4
Manufacture of leather and related products	0.50	-1.8	-18.0	1.3	-5.8
Manufacture of wood products	0.19	8.3	-19.6	15.1	-0.8
Manufacture of paper and paper products	0.87	-12.8	-23.3	17.7	0.6
Printing and reproduction of recorded media	0.68	-7.1	-28.0	12.4	23.4
Manufacture of coke and refined petroleum products	11.77	0.0	-12.2	8.9	5.7
Manufacture of chemicals and chemical products	7.87	-0.4	-2.1	4.3	6.9
Manufacture of pharmaceuticals	4.98	-0.1	1.6	1.3	-2.4
Manufacture of rubber and plastics products	2.42	-7.4	-3.7	8.0	0.5
Manufacture of other non-metallic mineral products	4.09	-1.9	-12.9	20.1	6.6
Manufacture of basic metals	12.80	11.0	-5.8	18.6	8.1
Manufacture of fabricated metal products	2.65	-14.7	-13.7	10.9	-1.6
Manufacture of computer, electronic and optical	1.57	-10.5	-12.6	11.1	-6.4
Manufacture of electrical equipment	3.00	-4.5	-12.3	12.2	-4.2
Manufacture of machinery and equipment	4.77	-12.7	-14.1	11.0	10.5
Manufacture of motor vehicles and trailers	4.86	-18.3	-19.1	18.4	19.3
Manufacture of other transport equipment	1.78	-6.2	-18.0	1.6	11.6
Manufacture of furniture	0.13	-7.2	-27.9	23.3	16.4
Other manufacturing	0.94	-12.5	-22.5	49.0	-3.0
MINING	14.37	1.6	-7.8	12.2	5.8
MANUFACTURING	77.63	-1.4	-9.6	11.8	4.7
ELECTRICITY	7.99	1.0	-0.5	7.9	8.9
OVERALL IIP	100.00	-0.8	-8.4	11.4	5.2

Data Source: MOSPI

What are the major takeaways that we see in the table above? There are some interesting trends that emerge by looking at a periods starting the COVID year and going forward. 

• After years of negative IIP growth FY20 and FY21, the fiscal year FY2 recorded a sharp double-digit bounce in IIP on the back of a low base. In comparison, the IIP growth in FY23 was at 5.2%, but on a much higher base and hence more sustainable. For the first 3 months of FY24 from April to June 2023 the cumulative IIP growth stands at 4.5%.

   

• Over the last 2 years, the product segments that have shown consistent growth include beverages, printing & recorded media, motor vehicles, trailers as well as machinery & equipment. There are some sectors that turned from positive growth in FY22 to negative growth in FY23. These include sectors like textiles, wearing apparel, leather products, pharmaceuticals, and computer electronics. The trend is clearly against the export oriented sectors, which have borne the brunt of the global slowdown. 

If manufacturing output in FY23 is lower than FY22 and that trends continues in FY24, the major reason is the pressure on the export oriented sectors. The domestically oriented sectors are still giving a robust performance.

Will the RBI MPC react to the latest IIP data?

The August monetary policy is done and dusted and the RBI has opted to maintain status quo on rates. This is the third policy in succession that the RBI has kept rates on hold at 6.5%. Here are some takeaways. 

• What we have seen in the last few months is the RBI focusing its monetary policy on inflation, but not losing sight of growth. In fact, the pause in the rates is largely an outcome of the pressure from the industry bodies, which were worried about the rising interest costs for Indian corporates. With IIP stable in the range of 4% to 5% and inflation likely to spike further, one cannot a shift in focus back to inflation.

   

• The good news in the IIP numbers is that the pressure is purely coming from the global sectors and not from the domestic sectors. The domestic demand continues to be robust and anyways there is not much of control that the Indian government or the RBI can exercise over global demand. Hence, it is now very likely that the RBI may substantively shift its focus from enabling growth to containing inflation.

In the next few policies, one must be prepared for an approach that favours inflation control over enabling growth. Global recession is still a worry, but for now the focus of the RBI would be on the factors where it can exercise control over; and that is clearly inflation.