The industrial production growth for FY25, at 4 percent, was lower than a year ago, reflecting moderation in economic activity as global demand turned more uncertain and domestic consumption continued to remain uneven. Going forward, economists are now tracking the demand growth in urban as well as rural economy, to gauge how the IIP growth could pan out, going forward.
“Monitoring consumption trends remains critical, given the ongoing unevenness in the domestic demand landscape. While rural demand is showing signs of recovery, lagging urban demand continues to be a concern.” said Rajani Sinha, Chief Economist, CareEdge Ratings.
The growth setup looks supportive for a meaningful rebound in industrial growth, said Mahendra Patil, Founder and Managing Partner, MP Financial Advisory. “Stable core sectors, resilient tax revenue, and benign inflation provide a supportive backdrop for sustained growth into FY26.” There has also been strong growth in net direct taxes and GST collections, underscoring the resilience of the formal sector and services-driven economy.
March 2025 industrial production growth remained flat at 3 percent, mainly due to poor performance of the manufacturing, mining and power sectors. The consumer non-durables continued to drag down IIP, with the output contracting further from -2.1 percent to -4.7 percent.
Meanwhile, new-age export segments like computers and electronic products saw a sharp rise in output, surging 21.5 percent from 11.2 percent, possibly influenced by pre-emptive exports ahead of anticipated trade barriers.
The manufacturing output rose by 3 percent in March, supported by consumer durables, infrastructure and construction. These gains were bolstered by a catch-up in government’s capital expenditure and improved consumer sentiment, driven by easing food inflation.
While public sector capital expenditure is likely to remain supportive, private sector investment may remain subdued in the coming quarters, weighed down by ongoing global trade policy uncertainties, fear experts.
Looking ahead, the industrial momentum may hinge on both global and domestic factors. While geopolitical tensions and uncertainties may dampen trade and private investment, the outlook remains moderately positive, said economists.
An inflation that is under check, easing interest rates, and sustained public infrastructure spending are expected to support domestic demand, going forward. “Another year of normal monsoon, and lower crude prices will also cushion the impact of external headwinds.” Dharmakirti Joshi, Chief Economist, Crisil added.
Additionally, a recovery in rural consumption and growth in electronics manufacturing could help broaden industrial growth, and equip against external shocks, experts added, citing more measures like the income tax relief announced in the Union Budget, an accommodative monetary policy by RBI, and forecast of a normal monsoon. These factors are likely to provide a supportive backdrop for FY26 growth.
With inflation under control, economists said the RBI now has more leeway to ensure an accommodative stance, provided external volatilities do not escalate. Looking ahead, monitoring global trade dynamics and geopolitical risks will be vital, experts added, for they pose downside risks to both private investment as well as consumption.
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