September 2024 IIP bounces back to 3.09% on low base effect

14 Nov 2024 , 09:47 AM

SEPTEMBER 2024 IIP EXPANDS BY 3.09%

After a surprising contraction in IIP in August 2024 at -0.07% (revised from -0.14%), the IIP growth bounced back to a positive figure of 3.09% in September 2024. IIP is announced with a lag of one month and the positive core sector had hinted at a turnaround in IIP too. This turnaround could largely be the base effect with the base IIP growth falling sharply from 10.87% to 6.35% between August and September 2023. Also, 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 August 2024 saw an improvement from (0.14)% to (0.07)%. However, the June 2024 IIP saw a 20 bps uptick from 4.73% to 4.90%. The signals for revisions of September IIP data are not too clear at this point of time.

IIP TROIKA – YOY AND HIGH FREQUENCY GROWTH

IIP is normally broken up into 3 components; mining, manufacturing, and electricity. Let us look at yoy growth first. The September 2024 mining IIP expanded by 0.2%, after contracting by -4.3% in August 2024. If you look at electricity IIP, it expanded by 0.5% in September 2024; compared to -3.7% contraction in August 2024. What about manufacturing with the 64% weightage? The Manufacturing IIP growth in September 2024 stood at an impressive 3.9%; compared to just 1.1% growth in August 2024. As a result, the headline IIP for September 2024 expanded by 3.1%; compared to -0.1% (revised) in August 2024. Manufacturing appears to be driving the IIP in last 2 months.

Let us quickly turn to high frequency IIP growth for September 2024. For September 2024, the high frequency growth across mining and manufacturing was positive while electricity was in the negative. For September 2024, the high frequency mining IIP expanded 4.30%, the manufacturing IIP expanded 0.68%, while electricity IIP was -2.54% lower. As a result, the headline MOM IIP was up by 0.69%. The MOM IIP numbers capture the short term 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 a turnaround in IIP in September 2024, but the trend shows a general slowdown in IIP as compared to the previous years. One argument is that this slowdown could be due to the slower pace of capex, but that could just be part of the story. The real issue is a general slowdown in demand across the board.

Month	IIP Growth (%)
Sep-23	6.35%
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	4.70%
Aug-24	(0.07)%
Sep-24	3.09%

Data Source: MOSPI

India is still the fastest growing large economy in the world for 3 years in a row. However, the message seems to be that there are chinks in the story now. The crisis in West Asia has put pressure on Indian trade. The message for the government is that it is time to once again focus on capex and growth and let the fiscal deficit find its way out.

SEPTEMBER 2024 IIP: TURNAROUND TRIGGERED BY BASE EFFECT

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

Product Basket	Weights	Jun-24	Jul-24	Aug-24	Sep-24
Manufacture of food products	5.3025	4.1	-1.6	-1.6	4.4
Manufacture of beverages	1.0354	0.2	2.3	-3.3	-0.1
Manufacture of tobacco products	0.7985	-11.3	13.1	-4.1	1.7
Manufacture of textiles	3.2913	-1.5	0.2	2.2	1.1
Manufacture of wearing apparel	1.3225	2.1	7.3	14.0	0.1
Manufacture of leather and related products	0.5021	-4.1	7.4	2.1	-2.2
Manufacture of wood products	0.1930	5.9	1.9	11.0	-0.7
Manufacture of paper products	0.8724	-1.8	-0.4	-0.5	3.8
Printing and reproduction of recorded media	0.6798	-3.8	-4.8	-7.7	-3.1
Manufacture of coke and refined petroleum products	11.7749	-1.0	6.8	-0.7	5.3
Manufacture of chemical products	7.8730	0.9	5.2	2.6	4.9
Manufacture of pharmaceuticals	4.9810	-2.9	-8.2	-5.8	1.5
Manufacture of rubber and plastics products	2.4222	7.5	8.6	6.4	9.9
Manufacture of other non-metallic mineral products	4.0853	3.1	1.9	-2.2	3.7
Manufacture of basic metals	12.8043	7.8	5.4	3.3	2.5
Manufacture of fabricated metal products	2.6549	3.2	11.7	-6.5	2.7
Manufacture of computer, electronic and optical	1.5704	10.6	10.5	11.6	-1.3
Manufacture of electrical equipment	2.9983	32.2	28.6	17.7	18.7
Manufacture of machinery and equipment	4.7653	1.3	5.3	-2.5	2.8
Manufacture of motor vehicles, trailers	4.8573	4.3	3.2	0.5	2.1
Manufacture of other transport equipment	1.7763	9.1	25.5	7.2	13.9
Manufacture of furniture	0.1311	18.6	9.8	19.3	32.9
Other manufacturing	0.9415	-12.9	-14.4	-8.1	2.7
MINING	14.3725	10.3	3.8	-4.3	0.2
MANUFACTURING	77.6332	3.5	4.4	1.1	3.9
ELECTRICITY	7.9943	8.6	7.9	-3.7	0.5
OVERALL IIP	100.0000	4.9	4.7	-0.1	3.1

Data Source: MOSPI

The last column shows the most current IIP reading for September 2024. IIP numbers are reported with a lag of 1 month. Let us first look at the positive drivers of IIP growth. The positive thrust is coming largely from sectors like furniture, transport equipment, electrical equipment, rubber & plastic products, coke & refined petroleum products, chemical products, and food products.

The negative pressure on IIP is coming from sectors like printing and recorded media, leather products, computer, electronics, & optical products as well as beverages. The export story appears to be mixed with some of them doing well and some of them under pressure. For now, the pressure on IIP appears to be more peripheral than structural. That is the good news!

A QUICK LOOK AT THE ANNUALIZED IIP DATA

The latest fiscal year FY25 now has 6 months cumulative data from April to September 2024; which is sufficient to extrapolate a picture for the full fiscal year. The cumulative IIP growth for FY25 is projected to fall to 4.0%. That is sharply lower than the 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	-2.6
Manufacture of beverages	1.0354	11.5	19.9	5.1	3.9
Manufacture of tobacco products	0.7985	8.7	-0.6	-8.3	-1.0
Manufacture of textiles	3.2913	29.3	-8.7	0.1	0.2
Manufacture of wearing apparel	1.3225	27.4	-7.4	-14.1	7.6
Manufacture of leather and related products	0.5021	1.3	-5.8	-1.0	-0.7
Manufacture of wood products	0.1930	15.1	-0.8	-5.9	2.4
Manufacture of paper and paper products	0.8724	17.7	0.6	-3.6	0.0
Printing and reproduction of recorded media	0.6798	12.4	23.4	-1.4	-3.8
Manufacture of coke and refined petroleum	11.7749	8.9	5.7	3.9	2.8
Manufacture of chemicals and chemical products	7.8730	4.3	6.9	-1.5	2.3
Manufacture of pharmaceuticals	4.9810	1.3	-2.4	8.0	-0.9
Manufacture of rubber and plastics products	2.4222	8.0	0.5	4.4	5.7
Manufacture of other non-metallic mineral products	4.0853	20.1	6.6	6.5	1.4
Manufacture of basic metals	12.8043	18.6	8.1	11.6	6.2
Manufacture of fabricated metal products	2.6549	10.9	-1.6	8.3	5.3
Manufacture of computer, electronic and optical	1.5704	11.1	-6.4	-11.3	8.3
Manufacture of electrical equipment	2.9983	12.2	-4.2	7.5	19.2
Manufacture of machinery and equipment	4.7653	11.0	10.5	6.6	1.5
Manufacture of motor vehicles and trailers	4.8573	18.4	19.3	11.6	4.6
Manufacture of other transport equipment	1.7763	1.6	11.6	13.9	14.6
Manufacture of furniture	0.1311	23.3	16.4	-5.5	27.2
Other manufacturing	0.9415	49.0	-3.0	-6.2	-5.2
MINING	14.3725	12.2	5.8	7.5	4.1
MANUFACTURING	77.6332	11.8	4.7	5.5	3.7
ELECTRICITY	7.9943	7.9	8.9	7.1	6.1
OVERALL IIP	100.0000	11.4	5.2	5.9	4.0

Data Source: MOSPI (FY25 is 6-Months data)

What are the gaining and losing sectors on an annualized IIP growth basis? 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 printing & recorded media, food products, leather products, tobacco products and pharmaceuticals. Overall, there is deterioration in growth compared to previous years.

GROWTH PANGS MAY EVENTUALLY TRIGGER RATE CUTS

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. That distinction appears to be under some danger now. It is unclear how much the RBI will be able to impact inflation, considering that even core inflation is looking up. However, the one thing the RBI would not want to do is to create an economic constriction by keeping rates high for too long. With the Fed already 75 bps down on rates, the RBI is running against time. Tepid IIP may just be the reason for rate cuts by the RBI.