India’s industrial production growth dipped to a 10-month low of 1.2% in May 2025, signalling a subdued start to the fiscal year, despite robust investment-linked activity. According to the quick estimates released by the Union ministry of statistics, the index of industrial production (IIP) in May stood at 156.6, marginally higher than 154.7 a year earlier.
The moderation follows a stronger 2.6% expansion in April and marks the slowest pace of growth since August 2024. Analysts attribute the deceleration to weak external demand, uneven domestic consumption and adverse weather patterns that curtailed electricity usage.
While the manufacturing sector—India’s industrial backbone—grew by 2.6%, the overall index was dragged down by sharp declines in electricity generation (-5.8%) and a marginal contraction in mining output (-0.1%).
Manufacturing posted a mixed performance, with 13 out of 23 sub-industries recording positive growth. Notable contributors included: basic metals (6.4%), non-metallic mineral products (6.9%), and machinery and equipment (11.8%). The latter benefited from higher production of pumps, internal combustion engines and centrifuges, signalling continued strength in investment-driven segments.
Use-based classification showed a strong 14.1% rise in capital goods, indicating continued government-led capital expenditure and private sector investments. Infrastructure and construction goods also rose by 6.3%, while intermediate goods expanded by 3.5%.
However, the consumer side of the economy showed persistent weakness. Consumer durables shrank by 0.7%, and non-durables—contracting for the fourth consecutive month—fell 2.4%. Primary goods also declined 1.9%, reflecting sluggish demand fundamentals in both urban and rural markets.
“The weakness in consumer goods highlights continued fragility in household demand. A strong monsoon, combined with lower interest rates and recent tax relief, may aid consumption revival in the second half of the fiscal,” says Dharmakirti Joshi, chief economist at CRISIL.
The steep fall in electricity generation, a key component of the IIP, was attributed to milder weather conditions and early monsoon rains reducing power consumption. The electricity index’s drop to -5.8% in May, from 1.7% in April, contributed significantly to the overall drag in industrial output.
Export-facing industries presented a mixed picture. While machinery and petroleum products showed improvement, sectors like apparel, pharmaceuticals and electronics witnessed output declines, pointing to inconsistent overseas demand.
Meanwhile, the government’s aggressive capital expenditure (capex) programme offered a silver lining. Data from rating agency ICRA showed that capex in April-May 2025 surged 54% over the previous year’s low base, constituting around 20% of the full-year budget estimate.
“While this growth is partially due to last year’s election-affected base, the scale of early capex suggests fiscal policy is supporting industrial activity,” says Aditi Nayar, chief economist at ICRA.
She added that government receipts received a one-time boost from higher-than-budgeted dividends from the RBI, resulting in a rare fiscal surplus in May. This fiscal headroom, ICRA estimates, could allow the government to raise capital expenditure by Rs0.8tn (trillion) over the budgeted Rs11.2tn, taking full-year capex to nearly Rs12tn.
Looking ahead, economists suggest that a broad-based recovery in industrial output will depend on multiple factors—normal monsoon rains, revival in consumer sentiment, easing borrowing costs post-RBI rate cuts and a pickup in global trade.
While investment-led growth offers some cushion, the sluggish performance in consumer-oriented and export-linked sectors suggests the path to a sustained industrial revival remains uneven.
