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Manufacturing growth likely to be driven by products related to capex cycle while general consumer products may drag; electronics manufacturing is the new frontier !

Manufacturing sector growth slowed down to 1.3% YoY in FY23 resulting in a drop in its share of GVA to 17.7%. Breakup of ‘manufacturing sector’s GVA’ is not yet available for FY23, but IIP constituent trends indicate that ‘consumer products’ primarily dragged down manufacturing in FY23 with exceptions like auto, beverage and furniture, which staged robust growth. On the flip side, manufacturing of capital goods witnessed strong growth, which is likely to continue given the rising capex cycle. Longer-term trends indicate that the fastest growth within corporate manufacturing sector’s GVA over the past decade has been delivered by ‘communication equipment’ and we expect such hi-tech products to continue to grow rapidly going ahead – given Policy initiatives such as PLI schemes.

Manufacturing growth fails to sustain the recovery momentum seen over FY20-FY22

Manufacturing sector’s GVA growth lost momentum in FY23 with a rise of only 1.3% YoY thereby significantly lagging the GDP growth rate of 7.2% and GVA growth of 7%. Consequently, share of manufacturing within GVA fell to 17.7% in FY23, which is below the level seen during the pre-covid period of FY19.

Key weakness in manufacturing appears to be in the consumer products segment due to weak exports and the ‘K shaped’ domestic consumption recovery

While the breakup of ‘manufacturing sector’s GVA’ is not yet available for FY23, the breakup of IIP-manufacturing indicates that ‘consumer products’ primarily dragged down manufacturing in FY23 with ‘consumer non-durables’ growth at 0.5% YoY and ‘consumer durables’ at 3.6% YoY. Granular productlevel data within IIP indicates that textiles, leather, electronics, wearing apparel, pharma/botanical, etc. were the key products that witnessed flat, or contraction in, YoY growth during FY23. However, consumer products that saw robust growth in FY23 include auto, beverages, furniture, ceramics, etc.

Manufacturing boosted by capex-related products (infra, construction, defence), which we expect to continue

Capex cycle continues to rise (refer note) and is corroborated by the strong growth in capital goods and infrastructure & construction goods within IIP, which should keep the production of such goods sturdy going ahead.

High growth observed in manufacturing of ‘communication devices’ over the past decade

Fastest growth in GVA within the corporate manufacturing sector over the past decade was seen in the ‘communication devices’ segment (19% CAGR) albeit on a small base. Given the government’s focus on boosting electronic manufacturing in India via schemes such as the PLI, we expect this space to witness rapid growth going ahead and spread into other hi-tech products such as semiconductors, etc. Other products that have witnessed high growth over the past decade include furniture, rubber & plastic, non-ferrous metals and textiles & cotton ginning.

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