The monsoon remains a potential constraint. ICICI Bank said the below-normal monsoon could weaken rural consumption, although it also noted that weather conditions had contributed partly to higher power demand…reports Asian Lite News Desk
India’s manufacturing sector is expected to maintain strong growth in the coming months, supported by resilient exports and a strengthening investment cycle, even as a below-normal monsoon could put pressure on rural demand, according to an ICICI Bank Research report.
The outlook comes as the country’s industrial production recorded a significant acceleration in August, highlighting continued momentum across several manufacturing segments.
Industrial production growth rose to 8 per cent year-on-year in August, compared with 7.4 per cent in July. Manufacturing output grew 9 per cent during the month, while electricity production also recorded strong growth.
ICICI Bank Research said exports were likely to remain an important source of support for manufacturing, while rising power demand pointed towards improving capital expenditure.
“While rural demand could weaken, exports should remain a bright spot thus powering manufacturing growth. Rising power demand too is positive for capex cycle when investment cycle is seen turning up,” the report said.
The report said the improvement in manufacturing was broad-based, reflecting both domestic and external demand.
Government-led infrastructure spending and an improvement in private-sector capital expenditure were identified as key factors supporting the manufacturing cycle.
Capital goods production, an indicator of investment activity, rose 16.9 per cent in August. The increase provides another indication that investment activity is gaining momentum after a period of relatively subdued growth.
Power demand also provided a positive signal. Electricity generation increased 13.3 per cent, while renewable power generation rose 15.4 per cent.
However, the performance across the wider industrial sector remained uneven. Mining contracted 5.6 per cent in August, highlighting continued weakness in that part of the economy.
Manufacturing growth itself was spread across several industries. Fourteen of the 23 manufacturing sectors recorded growth during the month, led by electrical equipment, transport equipment and motor vehicles.
Electrical equipment output increased 30.9 per cent, while other transport equipment and motor vehicles grew 25.3 per cent and 25.2 per cent, respectively.
Computer, electronic and optical products also recorded strong growth of 19.3 per cent.
The data suggests that investment-related industries are playing an increasingly important role in supporting overall manufacturing activity. Stronger capital goods production, rising electricity generation and growth in transport and electrical equipment point towards demand linked to infrastructure and investment.
At the same time, the report highlighted a divergence within consumer demand. Consumer durables are showing stronger momentum than non-durables, suggesting that the improvement in consumption is currently more visible in discretionary goods.
The monsoon remains a potential constraint. ICICI Bank said the below-normal monsoon could weaken rural consumption, although it also noted that weather conditions had contributed partly to higher power demand.
With exports and investment expected to remain key supports, the manufacturing sector enters the coming months with several sources of momentum. The balance between these strengths and weaker rural demand will be important in determining how broadly India’s industrial recovery continues.
