India's industrial output surge may lose steam amid global, monsoon risks: Crisil

India's industrial production accelerated to a 22-month high in June, driven by a broad-based recovery in manufacturing and strong electricity generation. However, Crisil has cautioned that the momentum could moderate in the coming months amid slowing global demand, elevated input costs, an erratic monsoon and geopolitical uncertainties in West Asia.

The Index of Industrial Production (IIP) grew 7.3% year-on-year in June, up from 5% in May. With this, industrial growth for the April-June quarter improved to 5.7%, compared with 3.9% in the January-March quarter. Manufacturing remained the key growth driver, supported by capital goods and consumer-oriented sectors, while electricity demand stayed robust due to warmer-than-normal weather.

According to Crisil, the rise in industrial output was broad-based across sectors. Manufacturing expanded 7.8% in June against 5.2% in May, while electricity and gas supply grew 10.6% and mining returned to positive territory with 1% growth after contracting in the previous month. Intermediate goods, infrastructure and construction goods, consumer non-durables and primary goods all recorded stronger growth, although capital goods and consumer durables witnessed some moderation from May levels.

Electricity production emerged as a major contributor, with electricity IIP rising to a 25-month high of 11.4% as heatwaves boosted power demand. Mining also posted its first annual growth in six months, helped by a sharp increase in metallic minerals output. Infrastructure and construction goods reached a four-month high, led by strong growth in non-metallic mineral products.

Consumer demand showed mixed trends. Food products, beverages and pharmaceuticals recorded improved output, while passenger vehicle production climbed to a five-month high, aided by sustained SUV demand, new launches and attractive financing schemes. However, export-oriented segments such as electronics and wearing apparel weakened, reflecting softer overseas demand.

Despite the strong June performance, Crisil expects industrial growth to ease going forward. It said slowing global growth is hurting export demand, while higher input costs and producers' limited ability to pass on prices could squeeze margins and dampen consumption. An erratic and below-normal monsoon may further affect agricultural incomes and increase the cost of farm-based industrial inputs. 

The agency also warned that renewed tensions in West Asia could push up energy costs, making manufacturing, mining and construction among the sectors most exposed to higher imported input prices. Against this backdrop, Crisil expects India's GDP growth to moderate to 6.6% in the current fiscal from 7.7% last year.