New Delhi: India’s industrial economy is expected to receive a festive bump, growing around 6% year-on-year in the next couple of months with improvement in monsoon rains, softening inflation, and election-related rise in spending adding to the festive sentiment.
Industrial growth hit a three-month high of 5.7% in July from 3.8% in June. “You can’t get a better time for manufacturing than now; festival season is followed by elections, with rabi and marriage season,” said Madan Sabnavis, chief economist at Bank of Baroda.
He noted that the election push may continue till May next year with five state elections at the end of the year to be followed by the general elections likely in April-May.
Inventory build-up of consumer durables – which have a 12.8% share in the Index of Industrial Production (IIP) – ahead of the festive season is expected to keep IIP higher for the coming months.
“Consumer durables production tends to pick up ahead and after Diwali month,” said Gaura Sengupta, economist at IDFC First Bank. “We also usually see a pick-up in consumer goods imports ahead of Diwali.”
Auto output rose sequentially in August with personal vehicles, scooters and motorcycles all recording a rise, according to a report by ICRA.
Rural demand, which has been muted, is expected to see some improvement with inflation easing and monsoon rainfall deficit shrinking to 6% this month from 11% at the end of August.
Consumer inflation eased to 6.8% in August after hitting a 15-month high in July and is expected to ease further in September.
“Rural demand recovery prospects have improved because rains have picked up, and inflation is again subsiding. Rural demand is strengthening, and that could support consumer non-durables in the future,” said Dhiraj Nim, economist at ANZ Research.
“In addition to festive demand, state elections may entail a positive impact,” he said.
Paras Jasrai, senior analyst at India Ratings and Research, said, “The effect of consumption demand driven by spending from upper-income households along with a favourable base effect which would be at play till October 2023 for the consumer goods sector (in IIP) would help the consumer durables and non-durables sectors record above-average y-o-y growth.”
An ET analysis shows that sequential growth in consumer durables is higher in the three months before Diwali than the average monthly growth witnessed for the rest of the year.
However, experts said this window has been shrinking and festival season impact may not be pronounced.
“While stockpiling is a typical pre-festive phenomenon, we have observed in recent years that the timeline over which inventory stockpiling occurs has reduced. It is now concentrated much closer to the festive season,” said Yuvika Singhal, economist at QuantEco Research.
