New Delhi: Festive demand and sustained public capital expenditure are expected to support India's industrial activity in the second half of FY27, although unfavourable base effects, weak monsoon conditions and higher input costs could weigh on production, according to a report by Union Bank of India. The report said the outlook would depend on whether improving rural demand and continued investment translate into sustained industrial growth, particularly as manufacturing and consumer durables face a less favourable comparison with the previous year. "Despite overall moderation, we see some improvement in rural demand as a surprise element despite EI-Nino led volatility. We expect upcoming festive demand and public capex push to support industrial activities in H2 FY27," the report said. Industrial production growth moderated to 6.7 per cent in September from 7.8 per cent in August. However, growth during the first half of FY27 stood at 6.8 per cent, higher than 4.4 per cent in the corresponding period last year. The report highlighted that the recovery in private capital expenditure was also supporting investment momentum. Infrastructure and construction output grew 7.2 per cent in September, while capital goods production expanded 10.4 per cent, although both segments recorded slower growth than in August. Live Events The report further identified consumer demand as a key area to watch. Consumer durables growth slowed to 6 per cent in September from 10.5 per cent in August, pointing to some moderation in urban demand. In contrast, consumer non-durables returned to positive growth of 1.4 per cent after contracting in the previous month, which the report said could indicate a revival in rural demand. High-frequency indicators offered some support to the outlook. Two-wheeler sales grew 33.4 per cent year-on-year in September, compared with 21.5 per cent in August, while passenger vehicle sales increased 23.3 per cent. Petroleum consumption also returned to growth, rising 3.4 per cent after five consecutive months of decline. However, Union Bank cautioned that the industrial outlook faced downside risks from weak monsoon conditions and the delayed pass-through of higher input costs arising from global supply shocks. The report also flagged adverse base effects in manufacturing, capital goods and consumer durables, partly due to the impact of GST rate cuts implemented during the corresponding period last year. The balance between festive-season consumption and public investment, and the risks from higher input costs and unfavourable base effects, will be important in determining the pace of industrial activity in the second half of FY27. Add as a Reliable and Trusted News Source Add Now! (You can now subscribe to our Economic Times WhatsApp channel)
Festive cheer to power India’s factories in H2
Festive demand and steady government spending are expected to support India's industrial activity in the second half of FY27. A new report by Union Bank of India highlights that improving rural demand and strong investments will help factories grow. However, officials warn that high production costs and weak monsoons could pose risks to this growth.
What happened
Festive demand and government spending will likely drive India's factory output in the second half of FY27, despite challenges like high input costs.
Why it matters
Festive demand and government spending are set to boost our factories and industrial growth in the coming months, which is great news for the overall economy and job market. However, rising input costs and weak monsoons could still pose challenges to steady growth.
Impact
Industrial production will likely see a short-term boost from festive shopping and vehicle sales, but high input costs and base effects will need to be monitored closely in the second half of the fiscal year.
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