Base effect, tepid demand cited as reasons
The growth in factory output, as measured by the Index of Industrial Production (IIP), is likely to slow down to around 4.7% in FY25 from an estimated 6.1% in FY24, in the backdrop of the statistical effect of a high base and fading away of pent-up demand, say economists.
In April-February FY24, IIP growth has averaged 6%.
An expectation of a slower IIP growth would also mean GDP growth in FY25 may end up lower than 7.5% projected by the National Statistical Office for FY24.
The Reserve Bank of India projected the GDP growth at 7% in FY25, but several economists have pegged it at 6.5-6.7%. The International Monetary Fund has projected FY25 growth at 6.8%.
The Centre for Monitoring Indian Economy (CMIE) expects all three sectors – ‘mining & quarrying’, ‘manufacturing’, and ‘electricity’ to register a slower growth in the current fiscal year as compared to FY24.
‘Mining & quarrying’ is likely to grow at 4.8% in FY25, down from 8.8% in FY24, and ‘manufacturing’ growth is seen slowing to 4.5% from 5.6%. ‘Electricity’ output growth is also likely to slow down to 5.8% in FY25 from 7.2% in FY24.
Within manufacturing – which accounts for about 78% of the IIP – the output of coke and refined petroleum products, food, beverages and textiles is likely to grow at a faster pace in FY25 as against FY24. CMIE expects coke and refined petroleum products to drive much of manufacturing and IIP growth this year, as major capacity additions are planned this year. The sub-segment carries a weight of 14% in the manufacturing group.
As per CMIE’s Capex database, six projects belonging to the refinery industry worth Rs.31,630 crore are expected to be completed during FY25. Of these, two projects from Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOCL) are expected to add capacity of 16.2 million tonnes (MT) on petroleum products.
Within the use-based category, the output of consumer durables and non-durables goods are likely to witness an accelerated growth due to low base and revival in rural demand; while the growth of capital goods is likely to ease, along with intermediate and infrastructure goods.
“While we do expect some revival in private capex, it may come later in the year supported by revamped PLI and improving capacity utilisation,” said Anitha Rangan, economist, Equirus Securities. “Therefore overall, capital goods could be the slowest in growth.”
Both consumer durables and non-durables recorded a growth of 3.3% and 4.2%, respectively, in the first eleven months of FY24. This is only likely to grow forward, thereby helping push up the IIP growth.
“Consumption growth in FY25 will be led by rural demand with monsoon expected to be better, supported by La Nina conditions. In FY24 rural demand has been weak as crop output was impacted by uneven monsoon,” said Gaura Sen Gupta, economist, IDFC FIRST Bank.
Sen Gupta sees GDP growing at 6.5% in the current fiscal – largely due to rise in input costs and increase in GDP deflator (growth in y-o-y terms). In FY24, a GDP deflator of 1.5% y-o-y likely boosted real GDP growth, but this year the deflator is expected to be much higher with increase in WPI inflation.
Source:financialexpress.com