The state of industry: Growth and sentiment | Number Theory

GDP numbers for the second quarter will only be released at the end of November. What does high frequency data tell us about the state of the economy?

This week, the government released Index of Industrial Production (IIP) data for the month of September. With this, we now have the numbers for inflation, IIP and core sector industries for the second quarter ending September 30. GDP numbers for the second quarter will only be released at the end of November. What does high frequency data tell us about the state of the economy?

HT print file

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  Manufacturing growth has been resilient to the war’s economic disruption

  Growth in both the IIP and core sector industries, has increased significantly from the previous period in both June and September quarters, the data shows. The West Asia war started on February 28. To be sure, granular data at least in the core sector industry index shows a more nuanced picture and records the adverse impact of the war on some sectors such as fertilizer production. Similarly, IIP shows that growth momentum is being driven by the broader non-consumer goods category. At the headline level, the takeaway is unambiguous. Manufacturing growth is likely to continue in the second quarter of the fiscal year.
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  Bank credit data also shows a pickup in credit to industry

  This is more statistical evidence that industrial activity is indeed showing some momentum. Monthly data on bank credit growth – latest available numbers are till August 2026 – shows that credit growth to industry has shown a sustained increase in the last one year. While the growth has plateaued in the last couple of months, it is still at very high levels . To be sure, these are nominal credit numbers and part of the pickup could be just inflation, but the boost is too high to be explained by just that. However, one could also look at the situation from another perspective. Credit to industry is nowhere near its earlier levels in terms of driving overall credit growth. This poses an interesting question. Is the current phase of credit growth for industry just a bounce back from the long period of deleveraging or a potential driver of higher growth? Perhaps it is too early to say.
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  RBI’s capacity utilisation survey data is slightly dated, but it does not show any trend break compared to the past

  One of the most widely tracked indicators of the state of demand in Indian industry is RBI’s capacity utilisation survey which is conducted every quarter. The latest available data from the survey is available for the April-June quarter. It does not show any real break from long-term trends either in terms of capacity utilisation levels or inventory to sales ratios.
• What do all of these numbers mean when read together? Manufacturing continues to do better than it did in the recent past. Some of it could be cyclical demand tailwinds from boost to consumer incomes through GST-rate and income tax cuts but some of it seems to be a reversal of deleveraging and some intent towards new capacity addition as seen in things such as higher credit growth. But for this growth to become sustained, demand conditions will have to improve on a more structural basis and not just cyclically. The external turbulence to the economy will remain a challenge to broad based demand revival given the bearish turn in consumer sentiment as can be seen in RBI data.