With degrowth in mining and manufacturing, factory output growth derived from Index of Industrial Productions (IIP) dipped to a 9-month low of 1.2 per cent in May, data from Statistics Ministry showed on Monday. In April it was 2.7 per cent.

Data showed that the manufacturing sector’s output growth decelerated to 2.6 per cent in May 2025 from 5.1 per cent in the year-ago month. Mining production contracted by 0.1 per cent against a growth of 6.6 per cent a year ago. Power production declined by 5.8 per cent in May 2025, against 13.7 per cent growth in the year-ago period. During the April-May period of FY26, industrial production grew by 1.8 per cent, compared to 5.7 per cent a year ago.

Durable goods

A note prepared by economists at HDFC Bank found that among the use-based categories, capital and infrastructure output expanded at a healthy pace, likely led by a thrust in government expenditure, despite a high base (for infrastructure). On the consumer side, a high base from last year led to contraction in durable goods output, while consumer non-durables contracted for the fourth consecutive month. “It was encouraging to see that on a sequential basis, consumer non-durables production has shown positive growth in April and May, possibly reflecting the improvement in rural demand,” it said.

Rajani Sinha, Chief Economist at CareEdge Ratings, said slowdown in manufacturing growth, along with contraction in both mining and electricity sectors, dragged down the overall IIP growth. From the consumption perspective, weakness in output of consumer non-durable goods has persisted. Moreover, growth in consumer durables has slipped into the negative territory following encouraging growth in the preceding months.

“Several factors, such as easing food inflation, policy rate cuts and favourable prospects for monsoon, are playing out positively for the consumption scenario. These should aid in strengthening the overall demand in the economy. Demand recovery in both the urban and rural segments remains critical,” she said.

Domestic production

Growth in coming months will depend upon number of factors. The note by HDFC Bank said as the high base effect fades, IIP growth could improve in the coming months. With frontloading of government expenditure, production of capital goods and infra goods could continue to gain momentum. Moreover, anti-dumping duties imposed by the government in the steel sector, along with an improvement in steel prices, could also help support domestic production. “With an improvement in consumer demand and clarity on tariff uncertainty, manufacturing production could also see some recovery over the coming months,” it said.

However, Sinha has a mixed opinion. On the investment front, the performance in capital goods and infrastructure/construction goods has shown an encouraging trend, rising by 14.1 per cent and 6.3 per cent, respectively. The Centre’s capital expenditure gained momentum towards the end of FY25, and has maintained an encouraging trend in the first two months of the current fiscal. This bodes well for the investment scenario in the economy. However, “private capex remains subdued, with global economic uncertainty further dampening the investment sentiments. Overall, both demand and investment trends remain crucial monitorables for the industrial performance going forward,” she said.

Published on June 30, 2025