India’s industrial growth momentum continues to lose steam as Index of Industrial Production (IIP) data released on April 11, 2025, showed a significant drop in output. The IIP for February 2025 recorded a modest 2.9 percent year-on-year growth, down from 5.2 percent in January, marking the lowest expansion in six months. The figures raise concerns about the health of India’s manufacturing and infrastructure sectors as well as the broader economy’s growth trajectory.

Core Sector Weakness Weighs on Industrial Output

This industrial slowdown is not an isolated occurrence. The core sector, which makes up 40 percent of the IIP, also witnessed a significant decline. As per data released earlier, core sector growth in February 2025 slipped to 2.9 percent, a five-month low, from 5.1 percent in January.

The core sector includes coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity, all of which are foundational to industrial production and infrastructure development. The weakness in this segment directly translates to lower industrial output, dampening hopes of a robust economic recovery in early 2025.

Manufacturing Sector Faces Significant Pressure

The manufacturing sector, which holds the largest weight within the IIP, is feeling the pressure. While the sector had posted a remarkable 12.3 percent growth in FY24, projections for FY25 have been revised downward to 4.3 percent.

This steep decline can be attributed to multiple factors:

• Weak domestic demand for consumer durables and intermediate goods.

• Global economic uncertainties, including volatility in commodity prices and exports.

• Delay in fresh private investment cycles as businesses adopt a wait-and-watch approach.

The manufacturing sector’s underperformance is a major drag on industrial output and will have ripple effects across employment, exports, and overall GDP growth.

Slowdown in Government Capital Expenditure

Another major contributor to the industrial slump is the slowdown in public capital expenditure (capex). Government data indicates that only 80 percent of the full-year capex target was achieved in the first 11 months of FY25.

Key observations:

• Centre’s capital expenditure, which had been a key growth driver post-COVID, has started to taper.

• Delayed fund disbursals and project clearances have led to a slowdown in public infrastructure projects.

• There has been little headroom for fresh spending, especially with fiscal deficit targets being strictly monitored.

This capex deceleration has adversely impacted infrastructure development, directly affecting related industries like cement, steel, and construction equipment manufacturing.

Muted State Government Spending Deepens Concerns

State governments, which play a pivotal role in grassroots-level infrastructure development, have also shown subdued capital spending.

• Data suggests that the capital outlay by states during the first nine months of FY25 was lower than the previous fiscal year.

• This trend is particularly concerning for sectors such as urban development, rural roads, sanitation, and power distribution, all of which rely heavily on state funds.

• States are facing budgetary pressures, higher interest costs, and delays in central devolution, further restraining their ability to invest.

The dual slowdown in both central and state capex is a critical drag on overall industrial momentum.

Implications for India’s Economic Outlook

The recent data does not bode well for India’s economic outlook in the near term. Industrial production is a key component of GDP, and sustained weakness in this segment could dampen overall growth in the coming quarters.

Key concerns include:

• Sluggish industrial and manufacturing growth can lead to reduced employment opportunities, particularly in labour-intensive sectors.

• A delay in private capex recovery, due to low business confidence, may prolong the slowdown.

• With elections approaching, there may be a shift in government spending priorities, further delaying economic revival.

What Analysts and Economists Are Saying

Economists have voiced concern that India’s growth engine might face headwinds in the absence of aggressive government and private sector investments.

According to leading economists:

• “The February IIP and core sector numbers suggest that the momentum in economic activity has waned,” said a senior economist at a major rating agency.

• “While base effects are fading, the real issue lies in weak capital formation and tepid consumption,” noted an analyst from a brokerage firm.

Many experts now believe that the Reserve Bank of India (RBI) may have to take a more accommodative stance in its upcoming monetary policy reviews, if growth continues to soften.

Conclusion: Urgency for Policy Action

India’s economic slowdown, as reflected in weak IIP and core sector numbers, underscores the urgent need for policy intervention. The government may have to consider:

• Accelerating capex disbursals, especially in infrastructure and rural development.

• Facilitating ease of doing business to encourage private investments.

• Boosting consumption demand through tax incentives or subsidies for lower-income groups.

The coming months will be critical in determining whether India can regain its industrial growth momentum or if it will continue to grapple with a prolonged slowdown in FY25.

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