Domestic demand environment favourable, trade deal with US could improve exports and support industrial growth: Report

NEW DELHI: India’s domestic demand environment remains favourable, supported by GST rationalisation and strong infrastructure spending, even as global trade uncertainties pose challenges, according to a report by ICICI Securities.

The report also noted that a potential trade deal with the United States could improve the export environment and help offset some of the external headwinds.

It stated, “Domestic demand environment is favourable but external demand could be a headwind given higher tariffs on India. A trade deal with US should improve the export environment.”

The report highlighted that India’s Index of Industrial Production (IIP) grew by 4 per cent year-on-year in September, maintaining the same growth rate as August.

The expansion was largely led by the manufacturing sector while the electricity sector grew by 3.1 per cent during the month.

From a use-based perspective, the data showed that consumer durables recorded the highest output growth in 10 months, rising sharply to 10.2 per cent year-on-year in September from 3.5 per cent in August.

This robust performance was attributed to a demand boost following the recent GST rationalisation, which supported discretionary consumption.
Infrastructure and construction goods output remained strong, growing 10.5 per cent year-on-year compared to 10.4 per cent in August.

The report attributed this resilience to government-led capital expenditure and robust steel production, which saw a 14 per cent year-on-year increase in September.

Capital goods output rose modestly to 4.7 per cent year-on-year from 4.5 per cent in August, while intermediate goods also saw a slight uptick to 5.3 per cent from 5.2 per cent in the previous month.

However, primary goods production growth moderated significantly to 1.4 per cent in September from 5.4 per cent in August, reflecting some softening in the industrial base.

On the downside, consumer non-durables continued to contract for the eighth consecutive month, falling 2.9 per cent year-on-year in September compared with a 6.4 per cent decline in August.

Overall, the report noted that while India’s domestic demand environment remains supportive, aided by government efforts, the external environment could act as a headwind due to higher tariffs imposed on Indian goods.

Nonetheless, the report expressed optimism that a trade deal with the US could provide a significant boost to the country’s export prospects and further strengthen industrial growth in the coming months. (ANI)