India's IIP grows by 5.2% in May, Infra, Capital goods rise fastest, electricity slowest

The electricity sector showed a slight improvement, with a growth rate of 0.9% in May, contrasting with the -1.1% growth seen in the previous month.

In terms of goods categories, primary goods registered a growth rate of 3.5% in May, up from 1.9% in the previous month.

The capital goods sector displayed notable growth, with a rate of 8.2% in May compared to 6.2% in the previous month.

Infrastructure goods also witnessed positive growth, with a rate of 14% in May, higher than the 12.8% growth seen in the previous month.

However, there was a mixed performance in consumer goods. While consumer durables recorded a modest growth rate of 1.1% in May, it marked an improvement from the -3.5% growth seen in the previous month. On the other hand, consumer non-durables experienced a growth rate of 7.6% in May, a decline from the 10.7% growth observed in the previous month.

Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA, said the IIP growth was in line with expectations,  "led by all the use-based industries except consumer non-durables and infra/construction goods".

"The YoY performance of several high frequency indicators related to freight and traffic movement deteriorated in June 2023 relative to May 2023 such as generation of GST e-way bills, cargo traffic at major ports, rail freight traffic, petrol and diesel sales, PV and 2W production as well as vehicle registrations. However, the YoY growth in electricity generation, output of Coal India Limited, and finished steel consumption improved in June 2023, relative to the previous month. Based on these trends, ICRA expects the YoY IIP growth to moderate to ~3-4% in June 2023," she said.

Rupa Rege Nitsure, Chief Economist, L&T Financial Services, said: “Growth is on a sounder wicket than expectations. In the month of May, most of the high frequency indicators also were moving in that direction, even the degrowth of exports as well as non-oil, non-precious metals imports etc was on the lower side in the month of May."

"What is pleasant to see is the fact that consumer durables growth has come back to positive zone. What makes me happy is 7.6-8 percent growth in consumer non-durables because that is a good proxy for rural demand. Having said that most of the high frequency indicators again had shown some deterioration in the month of June, so I don’t know whether this picture of May will sustain at the same level going ahead," she said.

"But one should be hopeful because the government's capex push is getting reflected in good growth of capital goods, construction, etc. and that has a multiplier impact. So there is every hope to stay cautiously optimistic.”

“I think RBI will continue with the phase of long pause because they are more driven by our own growth and inflation dynamics. Luckily all macro financial stabilisation factors are good for India. So even if US Fed rate goes up, I don’t think it will pose any threat for FPI inflows into India.”

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services, said: “Growth has been better than what we were expecting. We now have all the data till May and it definitely does not seem like there has been a serious slowdown in growth as of now. The consensus for IIP was 5 percent and it has come slightly better at 5.2 percent.”