India’s factory sector gathers steam, led by autos and capital goods

India’s industrial output grew 8 percent year-on-year in August, accelerating from 7.4 percent growth in July, according to data released by the Ministry of Statistics and Programme Implementation (MOSPI) on Monday. The jump in manufacturing and a rise in electricity and gas supply more than offset a contraction in mining in the same month.“This was aided by sharp growth in capital goods, intermediate, infra and consumer durable goods,” says Madan Sabnavis, chief economist at Bank of Baroda, adding that if this growth momentum is maintained, India can register growth of 7-8 percent for the year on the back of higher growth during the festival season, with demand building up, which makes the third quarter “very critical” for industry.Chart: Manufacturing, which carries about 76 percent of the index’s weight, expanded 9 percent in August, compared to 8.2 percent growth in July. Sabnavis says that manufacturing did “very well” and that the auto industry contributed at both entry level and premium segments. In a note along the data release, the ministry highlighted that manufacturing has now clocked growth of 8 percent or more for three consecutive months, calling it a “record performance”.Within manufacturing, 18 of 23 industry groups recorded positive growth. Electrical equipment led with 30.9 percent growth, driven by switchgear, optical fibre connectors and UPS systems. Other transport equipment rose 25.3 percent, driven by two-wheelers and railway rolling stock, while motor vehicles grew 25.2 percent, powered by auto components, passenger cars and commercial vehicles.Also Read: Moody’s raises India FY27 growth forecast to 7 percentRubber and plastics (21.4 percent), computer and electronic products (19.3 percent) and fabricated metals (16.9 percent) also posted strong gains. Five groups contracted, including tobacco (-8 percent), wearing apparel (-7.4 percent), coke and refined petroleum (-0.6 percent) and chemicals (-0.5 percent). Sabnavis explains that the “industries which under-performed like chemicals with negative growth were affected by the energy prices issue due to the [West Asia] war.”Electricity and gas supply grew 12.3 percent in August compared to 8.7 percent growth in July, helped by a 15.4 percent rise in renewable generation. Generation from non-renewable sources grew 12.3 percent in the same month.Water supply, sewerage and waste management grew 6.3 percent compared with 7.4 percent growth in the previous month. Mining and quarrying was the lone drag, contracting 5.6 percent as output from fuel minerals fell 5.7 percent and non-metallic minerals dropped 12.8 percent.The use-based classification shows investment and industrial demand leading. Capital goods grew 16.9 percent, intermediate goods 13.7 percent and construction goods 12 percent. Together they were the top three contributors to growth. Strong growth in capital and intermediate goods points to sustained factory and infrastructure activity.Consumer durables rose 11.1 percent, while primary goods grew 3.5 percent. Consumer non-durables were the weakest at 2.1 percent.Despite the uneven spread, economists see the momentum as durable. “The revival in industrial growth is a positive sign as this has been witnessed in the last few months. Growth in credit to industry has also been very high and broad-based supporting the hypothesis of the sector recovering quite rapidly this year to contribute positively to overall growth,” Sabnavis says.