Exports, rising power demand to support manufacturing growth despite rural weakness: ICICI Bank

New Delhi [India]: India's manufacturing growth is likely to remain supported by exports and a strengthening investment cycle in the coming months, even as a below-normal monsoon could weigh on rural demand, according to a report by ICICI Bank Research.

The report said exports should remain a bright spot for manufacturing, while rising power demand is also signalling strength in the investment cycle as capital expenditure begins to improve. It cautioned that weaker rural demand could put pressure on consumption, particularly FMCG demand.

"While rural demand could weaken, exports should remain a bright spot thus powering manufacturing growth. Rising power demand too is positive for capex cycle when investment cycle is seen turning up," the report said.


The assessment came as industrial production grew 8 per cent year-on-year in August, compared to 7.4 per cent year-on-year in July. Manufacturing expanded 9 per cent, while electricity output rose 12.3 per cent. Mining remained weak, contracting 5.6 per cent during the month.

ICICI Bank said the improvement in manufacturing was broad-based and reflected both domestic and external demand. Fourteen of 23 manufacturing sectors recorded an acceleration in growth in August, led by electrical equipment, transport equipment and motor vehicles.

Electrical equipment output rose 30.9 per cent, while other transport equipment and motor vehicles grew 25.3 per cent and 25.2 per cent, respectively. Computer, electronic and optical products also recorded 19.3 per cent growth.

The investment cycle is showing signs of strengthening, with capital goods production rising 16.9 per cent in August. ICICI Bank attributed this momentum to government-led infrastructure spending and improving private-sector capital expenditure. Infrastructure and construction goods also grew 6.4 per cent.

Power demand provides another positive signal. Electricity generation grew 13.3 per cent, while renewable generation increased 15.4 per cent. The report, however, noted that the increase in power demand was also partly explained by the below-normal monsoon.

ICICI Bank expects the export and investment cycle to remain key supports for manufacturing, while a weak monsoon could weigh on rural consumption. Consumer durables are already showing stronger momentum than non-durables, suggesting that the improvement in consumption is currently more visible in discretionary goods.