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Just before the formal start of the grand festive season of Navratri, Dussehra, Dhanteras and Diwali in the country, very encouraging and historic figures have emerged from the Indian economy front. According to the latest data released by the National Statistical Office (NSO) and the Ministry of Statistics and Program Implementation, the country’s Index of Industrial Production (IIP) has performed brilliantly in the month of August, registering an annual growth rate of 8 percent. This unexpected surge has not only surpassed the estimates of domestic economic analysts, but has also proved the underlying strength of the Indian economy at the global level. The increased pace of production in factories to meet the festive demand has proved that consumer confidence and spending power in the market is at a new high.
The surge comes at a time when many of the world’s major developed economies are grappling with recession, high inflation and global supply chain disruptions. Work is going on day and night in the manufacturing hubs of India’s major industrial clusters like Pune and Aurangabad in Maharashtra, Ahmedabad and Vadodara in Gujarat, Chennai and Coimbatore in Tamil Nadu, Gurugram and Manesar in Haryana and Noida, Ghaziabad and Kanpur in Uttar Pradesh. The loud sound of machines in factories and goods being prepared rapidly in warehouses are a clear indication that India’s corporate world is expecting record-breaking sales in the upcoming festivals.
The most pleasing and strong aspect of the industrial production data for the month of August has been the performance of the manufacturing sector, whose growth rate has reached the level of 9 percent. The share of manufacturing sector in the basket of Index of Industrial Production (IIP) is more than 77 percent, hence the strength of this sector is considered to be the backbone of the entire industrial system. Automobile, consumer durables, electronics, textiles, chemicals and capital goods segments recorded unprecedented growth in production during August.
Automobile and electronics companies, in particular, have increased the capacity of assembly lines to almost 100 percent to meet demand in advance of the festive season. Manufacturing of four-wheelers, two-wheelers and electric vehicles (EV) has recorded double-digit growth. Similarly, production of consumer durables like refrigerators, smart TVs, washing machines and air conditioners has also increased rapidly as advance bookings and dealer orders from both rural and urban areas are witnessing a huge increase. This 9 per cent jump in the manufacturing sector shows that the Central Government’s ‘Make in India’ and ‘Production Linked Incentive’ (PLI) schemes are now translating into massive industrial capacity expansion at the grassroots level.
If we look at the detailed components of industrial production, not only manufacturing but also mining and electricity production sectors have made a positive contribution. During the month of August, there was a continuous increase in electricity demand across the country, to meet which thermal, hydro and renewable energy plants maintained their production capacity. The solid increase recorded in power generation proves that the country’s commercial and industrial establishments are functioning at full capacity. On the other hand, mining sector activities also remained dynamic due to increased offtake of coal, iron ore and limestone.
The most important signal came from the data on ‘Capital Goods’ and ‘Infrastructure/Construction Goods’. Capital goods are the category in which heavy machinery, plant equipment and industrial plants are manufactured. The strong growth recorded in this segment is a direct evidence of the fact that private companies are now making capital investments (Capex) openly on setting up new factories and modernizing existing plants. This revival of private investment is taking the Indian economy beyond mere consumption-led growth to the next phase of investment-driven sustainable growth.
The 8 percent increase in industrial production has a direct and practical relationship with the income and livelihood of common citizens. When production in factories increases at the rate of 9 percent, its first positive impact is on the job market. During the festive season, lakhs of temporary and permanent job opportunities are being created in logistics, warehousing, packaging, retail and delivery sectors. New opportunities have opened up for the youth in tier-2 and tier-3 cities at the gig economy and operator level in factories.
Moreover, better distribution of monsoon rains this year has raised solid hopes of improvement in farm incomes in vast rural areas of the country. There has been a surge in demand from rural India for two-wheelers, agricultural equipment, fast-moving consumer goods (FMCG) and apparel. On the other hand, the urban middle class has additional budget available for shopping after festive bonuses and salary hikes. This healthy balance of demand and supply has given the speed to the wheel of industrial production, which was awaited for a long time. Banks and non-banking financial companies (NBFCs) are also offering consumer loans with attractive interest rates and festive offers with zero-processing fees, providing additional fuel to purchases.
Economic experts and market analysts believe that this 8 percent jump in IIP growth is a strong signal for both the Reserve Bank of India (RBI) and foreign institutional investors (FIIs). Strong industrial growth shows that the Indian economy has the capacity to absorb external shocks. From the stock market perspective, there is a strong possibility of major manufacturing, capital goods, auto and banking companies listed in Nifty and Sensex registering good corporate earnings in the financial results of the second and third quarter (Q2 and Q3).
Economists say that when industrial production is strong, the central bank also finds it easier to keep its monetary policies balanced. If inflation remains stable in the coming months, this strong industrial growth will play a central role in India achieving real GDP growth of over 7 per cent in the current fiscal year. For the country standing on the cusp of the festive season, these August figures are not only going to take market morale to the next level, but are also a pre-announcement of a rich festive season for every Indian.