October industrial production figures will remain strong due to festive demand; Report claims - growth will be 3.7%

As per the report by the Union Bank of India, due to festive demand India's industrial production is likely to improve in October 2024. The report pointed out that the Index of Industrial Production (IIP) grew by 3.7% year-on-year as compared to 3.1% in September. Yet this is much lower than the 11.9% growth recorded in October 2023, which was driven by a low base effect.

As per the IIP, "Industrial production growth indicated by the IIP may improve to 3.7% year-on-year as compared to 3.1% in the previous month and 11.9% in October 2023." The report also said that high-frequency indicators suggest that aggregate demand has strengthened again during the festive season. Strong rural and urban consumption, driven by better production and spending patterns, supported the uptick in demand.

According to the report, a better performance by the core sector, which contributes 40% to the IIP, has played a key role in this improvement. It grew 3.1% in October, the three-month high, as against a growth of 2.4% in September. The improvement was credited to higher production of coal, steel, and electricity. The production of fertilizers, refinery products, and cement declined while the production of crude oil and natural gas also showed a decline during the same comparative period.

The report also pointed out that there have been signs of improvement in manufacturing activity. Improvement in this sector was reflected in the increase in auto production driven by festive demand. Consumer non-durables showed a positive trend, indicating a pick-up in rural demand.

As the November bulletin issued by the Reserve Bank of India indicated, rural India emerged as a key contributor to demand recovery during the festive season boosted by a sharp rise in kharif crop production and optimism over the succeeding rabi harvest. E-commerce companies have indeed cashed in on this trend, having reported strong sales in the rural markets.

Urban demand, represented by consumer durables, also grew during the festive period, although at a slower pace than rural demand. "We estimate that manufacturing IIP growth improved due to festive season demand, as reflected in auto production growth data," the report explained.

The findings highlight the important role of seasonal factors and rural consumption in shaping India's economic recovery, with festive demand providing a much-needed boost to industrial activity in October. Official data for October IIP will be released by the Ministry of Statistics and Programme Implementation on December 12.