India’s industrial output growth dropped sharply to a six-month low of 2.9% in February 2025, according to the latest data released by the National Statistical Office (NSO) on April 11. This marked a significant deceleration from the 5.6% growth recorded in February 2024 and highlighted the ongoing challenges across core industrial sectors, including manufacturing, mining, and electricity.

This is the lowest growth rate recorded since August 2024, when the Index of Industrial Production (IIP) remained flat at 0%. The disappointing figures for February were partly attributed to the base effect, as well as to underperformance in key areas of the economy, including subdued rural and semi-urban consumption and sluggish demand in consumer non-durables.

The Index of Industrial Production (IIP) is a vital indicator that reflects the short-term changes in the volume of production of a basket of industrial products during a given period. It serves as an essential gauge of the health of the industrial sector and the broader economy.

Sector-Wise Breakdown

The manufacturing sector, which constitutes over three-fourths of the IIP, reported 2.9% growth in February, down from 4.9% in the same month last year. This marks the lowest manufacturing output growth since August 2024, indicating persistent weakness in demand, especially in rural and semi-urban areas.

The mining sector, another crucial contributor, saw its output growth fall to 1.6%, a significant drop from 8.1% in February 2024. This notable slump is a key reason behind the overall slowdown in industrial activity.

Electricity generation, which often acts as a proxy for industrial and domestic activity, also recorded a sharp slowdown, with growth declining to 3.6% in February 2025 compared to 7.6% in the previous year.

Use-Based Classification

From a use-based classification perspective, which categorizes goods based on their end-use, the data provided a mixed picture:

• Capital Goods: There was robust growth of 8.2%, suggesting a gradual revival in private and public investment activity. Capital goods are a proxy for investment in production capabilities and infrastructure.

• Infrastructure and Construction Goods: These maintained a healthy 6.6% growth, largely backed by government-led capital expenditure (capex). The ongoing infrastructure push from the central and state governments seems to be providing a much-needed boost to this segment.

• Consumer Non-Durables: This category, which includes daily use goods like food products and toiletries, contracted for the third consecutive month, highlighting fragile demand conditions, especially in staple goods. The weakness in this segment reflects broader concerns about household consumption in the face of inflationary pressures and income constraints in rural areas.

• Consumer Durables: Although specific data for February wasn’t detailed, past trends have shown this category under stress, with sporadic growth amid mixed market sentiment.

Revised Growth for January 2025

In an encouraging move, the IIP growth for January 2025 was revised upward from 5% to 5.2%, signaling a slightly better performance than initially reported. However, this does little to offset the sharp decline observed in February.

Year-To-Date Performance

For the April 2024 to February 2025 period, the cumulative IIP growth stood at 4.1%, significantly lower than the 6% growth recorded in the same period the previous fiscal year. This decline underscores the challenges facing India’s industrial sector, despite support from the government in terms of reforms, incentives, and infrastructure spending.

Expert Analysis

Sankar Chakraborti, MD & CEO of Acuite Ratings & Research, offered a deeper perspective on the slowdown. He pointed out that the deceleration in IIP growth was largely a result of the manufacturing and mining slowdown, exacerbated by the base effect.

He stated, “The manufacturing sector, which holds the lion’s share of the IIP weight, expanded by 2.9%, its lowest since last August, showing subdued rural and semi-urban consumption trends.”

Chakraborti also highlighted the positives, noting the strong performance in capital goods and infrastructure segments, which could be early signs of a revival in investment cycles. However, he cautioned about the persistence of demand fragility in the consumer space, especially in non-durable staples.

Outlook and Implications

The industrial production slowdown could have broader implications for India’s overall GDP growth, particularly as industry and manufacturing form a key pillar of economic output. The government’s continued focus on capital expenditure, PLI schemes, and Make in India initiatives are expected to provide long-term support, but the immediate concerns about sluggish domestic consumption and global uncertainties remain.

Moreover, with inflationary pressures still lurking and geopolitical tensions affecting global trade and supply chains, the industrial sector may continue to face headwinds in the near term.

While certain segments like capital goods and infrastructure are performing relatively well, the overall picture remains mixed, and a strong, sustained recovery will likely depend on reviving rural demand, improving consumer sentiment, and resolving supply-side constraints.

Conclusion

India's industrial growth slowdown to 2.9% in February 2025, a six-month low, is a clear signal that broad-based demand revival and policy support are essential to reignite the sector. The mixed performance across different segments of the economy reflects a complex interplay of factors—including base effects, consumption trends, and investment dynamics—that policymakers must navigate carefully.

With the 2025-26 Union Budget on the horizon, there may be room for fiscal adjustments and incentives targeted at boosting industrial output and enhancing consumption, particularly in lagging segments such as consumer non-durables.

As India continues its push toward becoming a global manufacturing hub, timely policy responses, easing input costs, and improving credit availability will be key to restoring momentum in the country’s industrial sector.

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