October 2024 IIP bounces to 3.45% on manufacturing thrust

13 Dec 2024 , 03:47 PM

OCTOBER 2024 IIP EXPANDS FURTHER TO 3.45%

After a surprising contraction in IIP in August 2024 at -0.07% (revised from -0.14%), the IIP growth had bounced back to 3.09% in September 2024. In October 2024, that trend has been further consolidated by the IIP growth hardening further to 3.45%. It may be noted that the IIP is announced with a lag of one month and the positive core sector growth had already hinted at improved IIP. However, this improvement in October comes despite an unfavourable base effect. For instance, between September 2023 and October 2023, the IIP had surged from 6.35% to 11.89%.

Logically, that should have been a recipe for the IIP to fall this year. However, despite the sharply higher base, the IIP in October 2024 hardened to 3.45%. It shows that momentum is much stronger than what the numbers reveal. A quick word on the revisions. IIP numbers go through two revisions i.e., first revision after 1 months and final revision after 3 months. The IIP growth of September 2024 did not witness any change and stayed put at 3.09%. However, the July 2024 IIP saw a 28 bps uptick from 4.70% to 4.98%. One needs to wait and watch how the latest month IIP gets revised.

IIP TROIKA – MINING, MANUFACTURING, ELECTRICITY

IIP is normally broken up into 3 components; mining, manufacturing, and electricity. Let us look at yoy growth first. The October 2024 mining IIP expanded by 0.9%, after growing by just 0.2% in September 2024. If you look at electricity IIP, it expanded by 2.0% in October 2024; compared to 0.5% in September 2024. What about manufacturing with its 64% weightage? The Manufacturing IIP growth in October 2024 stood at an impressive 4.1%; compared to 3.9% growth in September2024. As a result, the headline IIP for October 2024 expanded by 3.45%; compared to 3.09% in September 2024. Manufacturing appears to be the redeeming feature of IIP in last 3 months.

Let us quickly turn to high frequency IIP growth for October 2024. For October 2024, the high frequency thrust has largely come from mining, on a low base. For October 2024, the high frequency mining IIP expanded 15.04%, the manufacturing IIP expanded 0.61%, while electricity IIP was 0.43% higher. As a result, the headline MOM IIP was up by 2.18%. The MOM IIP numbers capture the short term trend or the high frequency trend; as against the YOY data, which is vulnerable to the base effect.

HOW IIP GROWTH EVOLVED OVER LAST 1 YEAR

The broad trend indicates the previous month turnaround consolidating in October 2024. There are still concerns over the capex spending, but that could change in the near future. Here is a quick dekko at the IIP numbers.

Month	IIP Growth (%)
Oct-23	11.89%
Nov-23	2.47%
Dec-23	4.39%
Jan-24	4.21%
Feb-24	5.60%
Mar-24	5.47%
Apr-24	5.19%
May-24	6.25%
Jun-24	4.93%
Jul-24	4.98%
Aug-24	(0.07)%
Sep-24	3.09%
Oct-24	3.45%

Data Source: MOSPI

While the IIP has surely consolidated in the last two months, it now looks like August 2024 may have been more of an aberration. However, there are macro risks to the India growth story. IIP slowed to 5.4% in Q2FY25 and CAD promises to be closer to 1.6% of GDP in the second quarter. Also, there is the unrest in Ukraine, the political shakeout in Syria, troubles in Bangladesh and China pre-emptively weakening the Yuan. All these remain immediate challenges for the India growth story.

OCTOBER 2024 IIP: PRODUCT-WISE BREAK OF IIP BASKET

The table captures comparative IIP growth for last 4 months, with respective components. Overall numbers for mining, manufacturing, and electricity are segregated.

Product Basket	Weights	Jul-24	Aug-24	Sep-24	Oct-24
Manufacture of food products	5.3025	-1.4	-1.6	4.8	4.9
Manufacture of beverages	1.0354	3.2	-3.3	0.4	3.4
Manufacture of tobacco products	0.7985	13.2	-4.1	1.6	11.2
Manufacture of textiles	3.2913	0.6	2.2	1.1	1.1
Manufacture of wearing apparel	1.3225	7.5	14.0	1.2	7.1
Manufacture of leather and related products	0.5021	7.3	2.1	-2.4	-3.5
Manufacture of wood products	0.1930	0.7	11.0	-1.3	10.0
Manufacture of paper products	0.8724	-0.5	-0.5	3.3	0.9
Printing and reproduction of recorded media	0.6798	-5.2	-7.7	-2.7	-9.5
Manufacture of coke and refined petroleum products	11.7749	6.8	-0.7	5.3	5.6
Manufacture of chemical products	7.8730	5.1	2.6	4.7	2.0
Manufacture of pharmaceuticals	4.9810	-8.1	-5.8	1.5	2.3
Manufacture of rubber and plastics products	2.4222	8.5	6.4	9.5	7.2
Manufacture of other non-metallic mineral products	4.0853	1.7	-2.2	3.3	3.1
Manufacture of basic metals	12.8043	6.8	3.3	2.2	3.5
Manufacture of fabricated metal products	2.6549	11.8	-6.5	2.4	8.1
Manufacture of computer, electronic and optical	1.5704	10.4	11.6	-1.7	0.6
Manufacture of electrical equipment	2.9983	28.6	17.7	18.7	33.1
Manufacture of machinery and equipment	4.7653	5.3	-2.5	3.6	-2.4
Manufacture of motor vehicles, trailers	4.8573	3.1	0.5	2.1	-1.6
Manufacture of other transport equipment	1.7763	25.5	7.2	13.9	17.4
Manufacture of furniture	0.1311	9.8	19.3	32.9	27.7
Other manufacturing	0.9415	-14.2	-8.1	2.9	-11.2
MINING	14.3725	3.8	-4.3	0.2	0.9
MANUFACTURING	77.6332	4.7	1.1	3.9	4.1
ELECTRICITY	7.9943	7.9	-3.7	0.5	2.0
OVERALL IIP	100.0000	5.0	-0.1	3.1	3.5

Data Source: MOSPI

The last column shows the most current IIP reading for October 2024. Let us first look at the positive drivers of IIP growth. The positive thrust is coming largely from sectors like electrical equipment, furniture, transport equipment, tobacco products, wood products, fabricated metal products, plastics, and wearing apparel.

The negative pressure on IIP is coming from sectors like other manufacturing, printing & recorded media, leather products, machinery & equipment, and motor vehicles & trailers. The story, ironically, is not about slowing exports, but about slowing domestic output as is evident from falling output of motor vehicles, machinery etc. For now, the pressure on IIP appears to be more peripheral than structural; so, India can still come out of it.

A QUICK LOOK AT THE ANNUALIZED IIP DATA

The latest fiscal year FY25 now has 7 months cumulative data from April to October 2024; which is sufficient to extrapolate a picture for the full fiscal year. The cumulative IIP growth for FY25 is at 4.0%. That is sharply lower than previous years.

Product Basket	Weights	2021-22	2022-23	2023-24	2024-25
Manufacture of food products	5.3025	5.9	3.8	1.6	-1.5
Manufacture of beverages	1.0354	11.5	19.9	5.1	4.1
Manufacture of tobacco products	0.7985	8.7	-0.6	-8.3	0.7
Manufacture of textiles	3.2913	29.3	-8.7	0.1	0.4
Manufacture of wearing apparel	1.3225	27.4	-7.4	-14.1	7.7
Manufacture of leather and related products	0.5021	1.3	-5.8	-1.0	-1.1
Manufacture of wood products	0.1930	15.1	-0.8	-5.9	3.2
Manufacture of paper and paper products	0.8724	17.7	0.6	-3.6	-0.1
Printing and reproduction of recorded media	0.6798	12.4	23.4	-1.4	-4.6
Manufacture of coke and refined petroleum	11.7749	8.9	5.7	3.9	3.2
Manufacture of chemicals and chemical products	7.8730	4.3	6.9	-1.5	2.1
Manufacture of pharmaceuticals	4.9810	1.3	-2.4	8.0	-0.4
Manufacture of rubber and plastics products	2.4222	8.0	0.5	4.4	5.8
Manufacture of other non-metallic mineral products	4.0853	20.1	6.6	6.5	1.5
Manufacture of basic metals	12.8043	18.6	8.1	11.6	6.0
Manufacture of fabricated metal products	2.6549	10.9	-1.6	8.3	5.7
Manufacture of computer, electronic and optical	1.5704	11.1	-6.4	-11.3	7.2
Manufacture of electrical equipment	2.9983	12.2	-4.2	7.5	21.0
Manufacture of machinery and equipment	4.7653	11.0	10.5	6.6	1.0
Manufacture of motor vehicles and trailers	4.8573	18.4	19.3	11.6	3.6
Manufacture of other transport equipment	1.7763	1.6	11.6	13.9	15.0
Manufacture of furniture	0.1311	23.3	16.4	-5.5	27.3
Other manufacturing	0.9415	49.0	-3.0	-6.2	-6.1
MINING	14.3725	12.2	5.8	7.5	3.6
MANUFACTURING	77.6332	11.8	4.7	5.5	3.8
ELECTRICITY	7.9943	7.9	8.9	7.1	5.4
OVERALL IIP	100.0000	11.4	5.2	5.9	4.0

Data Source: MOSPI (FY25 is 7-Months data)

What are the gaining and losing sectors on annualized IIP growth? Among the gaining sectors in IIP are furniture, electrical equipment, transport equipment, computers, wearing apparel, basic metals, and fabricated metal products. Among the sectors under pressure are other manufacturing, printing & recorded media, food products, leather products, and paper products. Overall, there is deterioration in growth compared to previous three years.

WHY IIP MAY NOT INDUCE RBI RATE CUT?

While RBI does not explicitly look at IIP for its rate decision, it does get factored into its calculations. RBI would not want delayed rate cuts to impact India’s stature as the fastest growing large economy. More so, when the Fed has already  cut rates by 75 bps. However, currently, India is facing below average growth, but very high inflation. Unless the inflation comes down structurally, the RBI may not be too keen to cut rates. For now, it looks like any rate cuts in February 2025 may also be ruled out!