India’s industrial output growth dropped sharply to 1.2% in May 2025, from 2.7% in April, marking the slowest pace since August 2024. This steep deceleration—well below the market expectation of 2.4%—signals a visible cooling in economic momentum. Analysts point to sector-specific pressures including weak consumer demand, a contraction in mining activity, and a significant decline in electricity generation.
The sectoral breakdown reveals mixed trends. Manufacturing, which forms the bulk of the Index of Industrial Production (IIP), grew 2.6%—slightly lower than last month’s ~3.1%. Mining output slipped by 0.1%, mainly due to early monsoon rains disrupting extraction activity. Most notably, electricity output plunged 5.8%, reversing a 1.7% gain in April, likely impacted by reduced seasonal demand and early rainfall affecting hydropower supply.
Use-based performance data showed resilience in some areas. Capital goods output surged 14.1%, largely due to a favorable base effect from May 2024. Infrastructure and construction goods were up 6.3%, supported by strong public capex, while intermediate goods rose 3.5%. However, demand from end consumers remained soft. Consumer durables declined 0.7%, and non-durables fell a steeper 2.4%, reflecting weakness in both rural and urban demand.
The broader concern now shifts to the first quarter of FY26. Industrial growth for April–May stands at 1.8%, a steep drop from 5.7% in the same period last year. This raises the likelihood of a slowdown in industrial Gross Value Added (GVA) for Q1, which could drag down overall GDP growth for the June quarter.
Several factors are behind this downtrend. The early arrival of the monsoon impacted power demand and mining activity. In addition, factory-level demand has remained tepid, especially in the consumer segment, where inflationary pressures, inventory caution, and global headwinds are acting as drags.
In response to the weak growth and soft inflation—May CPI came in at 2.8%—the Reserve Bank of India (RBI) had already cut the repo rate by 50 basis points to 5.5% on June 6, and shifted its stance from “accommodative” to “neutral.” Policymakers are expected to remain watchful, with the next IIP data due on July 28, 2025. Should industrial activity remain subdued, further monetary easing or fiscal interventions could be on the table.
Despite the gloom in certain segments, capital goods and infrastructure demand remain strong, suggesting that the investment cycle may continue to support output. However, weak consumer sentiment, especially in durables and non-durables, remains a risk to overall recovery.
The coming months will be crucial. If sectors like mining, electricity, and consumer manufacturing do not rebound quickly, the broader implications could include slower job creation, lower private investment, and increased pressure on government stimulus measures.