​Growth pangs: on industrial activity  

At 4%, India’s fiscal 2025 average of Index of Industrial Production (IIP) is at its lowest in the past four years, marking a slowdown in industrial activity. This could be attributed to uncertainties in the global economic outlook leading to tepid goods exports growth, lower than expected consumption demand growth, and a dip in private capital expenditure. While the monthly barometer of the nation’s industrial output, the IIP, grew in March to 3% from February’s 2.7%, this has been mainly on account of a rise in power production, which cyclically peaks in summer. Power output growth almost doubled between February (3.6%) and March (6.3%). But the fall in the IIP, from 5.9% (2023-24) to 4% (2024-25), warrants a closer look at the sectors that have lagged. While mining steeply declined from 7.5% (FY24) to 2.9% (FY25), manufacturing followed with 5.5% (FY24) and 4% (FY25) and electricity at 7% (FY24) and 5.1% (FY25). What is more significant is the degrowth of -1.6% in fiscal 25 witnessed in consumer non-durables from 4.1% in the previous year. Contrasting this with the growth almost doubling in consumer durables from 3.6% (FY24) to 8% (FY25) likely indicates an uptick in urban private consumption, while lingering effects of high food inflation in the October to December quarter of the last fiscal continue to strain rural consumption. Sure, retail inflation was at its lowest in six years at 4.6% in FY25, aided by steep falls in vegetable prices in the last quarter, but this also heavily impacted farm incomes, further straining rural consumption. While a decrease in the RBI’s bank lending rate to 6% in April from 6.5% in January has led to lower capex lending rates across banks, an uncertain economic and trade environment is unlikely to encourage the private sector to raise investment, without substantial domestic consumption impetus from the government.

The flat growth in goods exports in FY25 is another area that must concern policymakers as it indicates considerable strain on India’s sprawling small businesses, the MSME sector, that contributes about 45.8% in exports. This sector has witnessed remarkable growth over the past five years, quadrupling in size from about ₹4 lakh crore in FY21 to ₹12 lakh crore in FY25. However, given strained trade relations with the country’s largest trading partner, the United States, India must ensure that the Bilateral Trade Agreement that is under negotiation fortifies India’s nearly 60 million MSMEs, the vast majority of which are classified as micro industries. Consequently, this will protect the over 250 million jobs that the sector provides.