India’s July industrial output rises to five-month high on robust economic activity

By Nikunj Ohri and Shivangi Acharya

NEW DELHI (Reuters) – India’s industrial output rose at its fastest pace in five months in July, helped by strong mining and electricity activity, but high inflation and slowing pent-up demand may dampen future growth, economists said.

Industrial output rose 5.7% year-on-year in July, compared with a revised 3.8% in the prior month, data from the Ministry of Statistics showed on Tuesday. This was faster than the 4.8% predicted by a Reuters poll. In February, industrial output rose 5.8%.

Electricity generation during July rose 8% over the same period a year earlier, while mining activities increased 10.7%, the data showed. In June, electricity generation rose 4.2%, and mining activities increased 7.6%.

Infrastructure goods showed strong growth but consumer goods saw divergent trends, with output of more pricey goods such as automobiles and household electronics declining on-year.

“The infrastructure and construction segment continued to put up a healthy show gaining from the centre’s sustained capex push,” economist Rajani Sinha of CareEdge Ratings said.

By end-July, the Indian government had spent nearly 32% of the 10 trillion rupees ($120.64 billion) in capital expenditure planned for the current fiscal year that started on April 1.

Manufacturing output rose 4.6% year-on-year in July from 3.1% in June.

However, Madan Sabnavis, an economist at Bank of Baroda, said nine manufacturing industries out of more than 20 witnessed negative growth during the month which “was disappointing”.

High inflation could hit industrial activity as consumers look to delay discretionary spending in the coming months, economists said.

India’s retail inflation eased in August as food prices moderated, but remained above the upper end of the central bank’s target band for a second consecutive month, keeping policymakers watchful.

The festive season, which starts from October in India, is likely to provide a boost to consumption in the near-term, but “elevated food inflation and monsoon-related vagaries could pose a risk for consumption demand,” Sinha said.

Industrial output in the first four months of the fiscal year was up 4.8% from a year earlier. ($1 = 82.8907 Indian rupees)

(Reporting by Nikunj Ohri and Shivangi Acharya; Editing by Christina Fincher, Sharon Singleton and Alex Richardson)