The latest industrial output estimates from the National Statistical Office indicate an across-the-board loss of momentum in December with overall production growth slowing to 4.3% year-on-year, from November’s 7.3% pace. While activity was unchanged or moderated across all the three constituents of the Index of Industrial Production — mining, manufacturing and electricity — the largest sector manufacturing, with a weight of almost 78%, was the biggest drag as the expansion decelerated to 2.6%, from the preceding month’s 6.4% increase. Assessed on a sequential or month-on-month basis, mining and manufacturing posted slowdowns, with only electricity growing 7.6% in the wake of November’s contraction of 1.5%. Manufacturing, where the sequential growth slowed by more than 2 percentage points to 4.7%, from 6.9% in the previous month, was weighed down by three of the six use-based sectors including consumer durables, consumer non-durables and capital goods. The three categories reflect a broader trend in the economy. For one, private consumption is still to regain an enduring footing notwithstanding a post-pandemic surge in pent-up spending most visible in the services sector. Production of consumer durables shrank 10.4% year-on-year and 2.2% sequentially in December, after rebounding in November following festival demand. Non durables experienced a sharp sequential deceleration, with growth braking to 7.4% month-on-month.
The capital goods data point to continuing uncertainty on the private sector investment front. Production of the plant and machinery ordered when expanding or starting ventures is struggling to sustain momentum, with output growth sliding appreciably both sequentially and year-on-year. In December, growth from a year earlier in the segment slowed to 7.6%, compared with November’s 21.6%. Month-on-month, the slowdown was starker with output barely inching up 0.2%, after expanding 13% in November. However, primary and infrastructure and construction goods offer hope that some positive momentum can be built on with the right policy measures. While the sequential pace of growth for primary goods output quickened to 9.2% from 1.1%, the month-on-month advance for infrastructure and construction ticked up to 4%, from November’s 3.2%. With the RBI’s survey of the manufacturing sector’s outlook indicating firms expect some softening in order books and overseas demand in the current quarter, a lot will hinge on policy staying supportive. The Union Budget’s plan to provide a push for infrastructure through a substantial increase in the government’s capital expenditure should provide a big fillip to construction goods and is likely to feed through to other sectors as well in the coming months.
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