Industrial activity is expected to gain support from domestic consumption in FY25: CRISIL

New Delhi [India], July 16 (ANI): Industrial activity in the current fiscal year is poised to gain support from domestic consumption, with an anticipated improvement in private consumption, which had weakened to 4 per cent last fiscal, according to CRISIL report.
The normalization of the monsoon in July and the increase in kharif sowing are expected to boost agricultural output, which in turn, should ease food inflation and enhance discretionary spending.
The Index of Industrial Production (IIP) increased by 5.9 per cent year-on-year in May, up from 5.0 per cent in April, reflecting a healthy surge in industrial activity.
This growth was primarily driven by higher outputs in manufacturing and electricity, while mining output growth slowed slightly.
Consumption-oriented sectors were the main drivers of this increase in May, although growth in infrastructure and investment-related goods decelerated.
The fiscal year is expected to see a continued boost in industrial activity from improving domestic consumption. An above-normal monsoon is anticipated to enhance agricultural incomes and help control food inflation.
However, the urban economy might face challenges due to tighter credit conditions. The Reserve Bank of India's consumer confidence index indicates softening prospects for urban consumption.
The upcoming Budget will play a crucial role in determining the extent of the central government's support for growth.
Fiscal consolidation is likely to lead to reduced government support for growth this year. Globally, an improved trade outlook is expected to support exports, although uneven growth in major economies could pose challenges. Consequently, GDP growth is expected to slow down to 6.8 per cent this fiscal, compared to 8.2 per cent last year.
The IIP grew by 5.9 per cent year-on-year in May, up from 5.0 per cent in April. Sequentially, the index rose by 1.4 per cent month-on-month after seasonal adjustments.
The growth was driven by electricity (13.7 per cent year-on-year versus 10.2 per cent) and manufacturing (4.6 per cent vs. 3.9 per cent), while mining growth slowed slightly (6.6 per cent vs. 6.8 per cent).
This was driven by consumer durables (12.3 per cent vs. 10.0 per cent), primary goods (7.3 per cent vs. 7.0 per cent), and consumer non-durables (2.3 per cent vs. -2.5 per cent). Conversely, growth in infrastructure and construction goods (6.9 per cent vs. 8.0 per cent), capital goods (2.5 per cent vs. 2.7 per cent), and intermediate goods (2.5 per cent vs. 3.2 per cent) slowed.
Logged a 12.3 per cent increase in output growth in May versus 10.0 per cent in April, driven by a sharp rise in computer and electronic products growth (20.1 per cent vs. 2.4 per cent). However, there was a slowdown in furniture (23.2 per cent vs. 44.7 per cent) and automobiles (6.2 per cent vs. 11.8 per cent).
Output rebounded in May (2.3 per cent vs. -2.5 per cent), partially driven by some recovery in food products (-5.5 per cent vs. -12.8 per cent), textiles (-0.7 per cent vs. -1.1 per cent), and pharmaceuticals (7.5 per cent vs. 3.0 per cent).
Recorded an uptick (7.3 per cent vs. 7.0 per cent) driven by a rise in electricity production (13.7 per cent vs. 10.2 per cent), due to higher demand amidst heatwave conditions.
Increased output was seen in pharmaceuticals (7.5 per cent vs. 3.0 per cent), fabricated metals (12.3 per cent vs. 10.2 per cent), and machinery and equipment (1.7 per cent vs. 0.3 per cent).
This was reflected in a sharp pick-up in non-oil exports in May (7.8 per cent vs. 0.6 per cent in April). The rising share of electronic products in total exports was also reflected in the IIP.
IIP growth has averaged 5.4 per cent year-on-year in April-May 2024, stronger than the 5.1 per cent in the previous quarter.
The Manufacturing Purchasing Managers' Index (PMI) rose to 58.3 in June from 57.5 in May, indicating strengthening industrial activity. The easing of food inflation is expected to boost discretionary consumption further.
The urban economy continues to be supported by robust credit growth but may cool off as rate hikes take effect and services slow.
The rise in lending rates by some banks in July suggests that the transmission of the RBI's past rate hikes is still in progress.
However, moderating fiscal support could limit growth, as the central government reduces its fiscal deficit. The upcoming Budget will be crucial in assessing the government's support for the economy.
Globally, the outlook for export demand is mixed. While global GDP growth is expected to slow this year, trade volumes are anticipated to pick up in 2024. Risks from geopolitical tensions to global trade flows remain elevated.
Overall, GDP is expected to moderate to 6.8 per cent this fiscal after a strong 8.2 per cent growth last year, still stronger than the 6.6 per cent average growth seen in the decade before the pandemic. (ANI)