Factories Slow, Festivals to the Rescue: India's Industrial Growth at 4% in September Economists anticipate a turnaround in factory output riding on the back of GST reduction, festival demand, and lax credit.

India's industrial production or factory output — one of the most important gauges of whether factories, mines, and power plants etc are doing well, rose 4% in September, marginally lower than 4.1% in August, as per latest numbers from the National Statistical Office (NSO). Economists, however, anticipate a turnaround riding on the back of GST reduction, festival demand, and lax credit.

"India's IIP grew by 4% in September compared to 4.1% in the previous month. The manufacturing and electricity sectors continued to provide support to the overall industrial production, while the mining sector growth witnessed a contraction," Rajani Sinha, Chief Economist at credit rating agency CareEdge said.

She added further that the improvement in growth of consumer durables is encouraging, given that GST rationalisation, income tax reductions, and easing inflation have created a favourable environment for consumption. "

Drivers of Decline

The decline in the factory output was led primarily by weaker mining and electricity activity, while manufacturing indicated strength. Manufacturing, which accounts for almost 78% of India's industrial output, grew 4.8% in September, from 3.8% in the previous month. Mining output, though, fell 0.4%, while growth in electricity cooled to 3.1%.

Certain sectors were notable for their robust performance such as electrical equipment was up 28.7%, motor vehicles 14.6%, and basic metals 12.3%. But almost 10 of 23 manufacturing sectors, such as food, textiles, and pharmaceuticals, showed lower output than previous year.

On a usage basis, the contrast was marked. Consumer durables like cars, electronics, and home appliances registered a good 10.2% increase being at ten months' high as festive season buying surged. Infrastructure and construction products also increased well at 10.5%, indicating robust investment on projects. However, primary goods, such as raw materials, increased only 1.4%, indicating weakness in mining and electricity.

Analysts believe that the coming couple of months could see improved numbers due to festival buying, GST reductions, and softer interest rates that should support household and business expenditure.

"Industrial growth eased somewhat primarily on account of weakness in mining and electricity," said Dharmakirti Joshi, Chief Economist at CRISIL. "But domestic consumption will keep things going, aided by tax relief, easy credit, and decent inflation.

He said India's economy is set to grow at about 6.5% this year but that global trade tensions and issues related to tariffs might function as a brake. Joshi highlighted that In coming quarters, there are downside risks to growth due to external factors.

"Exports to the United States (US) shrank by 11.9% on-year in September as higher tariffs kicked in. A trade deal with the US, if concluded soon, will mitigate some of the impact," he said.

In spite of the brief slowdown, analysts feel India's industrial momentum is intact, with consumer spending, infrastructure demand, and diversification of manufacturing keeping growth firm. The coming few months — particularly the festive and post-harvest period will be a bellwether in establishing whether the recent softness was a blip or a beginning of a softer trend.

"Overall, several factors are playing out in favour of the domestic demand improvement. However, we expect global headwinds arising from tariff-related uncertainties to persist. Going forward, the interaction between domestic developments and external factors will play a crucial role in shaping the trajectory of overall industrial activity in the economy," Rajani Sinha opined.

Now all economy watchers are hooked on to the US Fed FOMC Meeting that is underway and will decide the trajectory of interest rates in the US. And the FOMC decision will have a big impact on the global economy as well.