India’s IIP growth moderated in Dec-24 to 3.2%YoY from a downwardly revised 5.0% in Nov-24 (earlier 5.2%). This was a tad below expectations, with market median consensus pegged at 3.9%.

Key Highlights

• On a sequential basis, the IIP index expanded by 6.1% in Dec-24. This was lower than the average expansion of 6.8% usually seen in the month of December.
• On an annualised basis, headline growth was led by the electricity sub-sector, which expanded by 6.2% - the highest growth in 5 months. Mining growth too improved a tad, to 2.6% in Dec-24 from 1.9% in Nov-24.
• On the other hand, manufacturing output expanded at the slowest pace in 4 months by 3.0% in Dec-24
• Within the manufacturing industries, the top 3 fastest growing sub-sectors were – 1) Electrical equipment (40.1% YoY), 2) Furniture manufacturing (22.1% YoY) and 3) Wood and wood products (17.2%YoY)
• On the other hand, the bottom 3 lagging sectors were 1) Pharma, Medicinal Chemical Products (-9.5% YoY), 2) Printing and Reproduction of Recorded Media (-9.2%YoY) and 3) Leather and Related Products (-7.0%YoY)
• Use-based classification: Growth on the use-based side was mixed. 
  1. Slowdown in production of consumer goods (i.e., both Durables as well as Non-durables) weighed on headline growth. 
  2. While growth in Consumer durables remained healthy at 8.3%YoY, that of Consumer non-durables slipped into a sizeable contraction of 7.6% - the worst in over 2 years. 
  3. Investment-oriented sectors i.e., – Capital goods, Intermediate goods and Primary goods, clocked a higher growth in Dec-24 vis-à-vis Nov-24. 

Outlook

The weak IIP outcome in Dec-24 falls in line with high-frequency indicators that had painted a mixed trend for Dec-24. While PV sales, Tractor sales and E-way bills had improved, others, such as two-wheeler sales, PMI manufacturing, and steel consumption, had seen performance deteriorate in Dec-24. Having said that, a robust pick-up in Government Capex in the last month of the calendar year is likely to have supported the pick-up in investment-oriented sub-sectors. With the Central government slated to spend 33% of the budgeted target (i.e., of the downwardly revised Rs 10.2 tn) in Q4 FY25, this momentum could continue over the course of Q4 FY25.

For FY26, industrial growth will be a function of the intensity of domestic consumption recovery and deterioration in the global outlook, especially with respect to tariffs.

Consumption is likely to fare better, owing to the reduction in income tax burden on middle-income earners. We believe that the induced improvement in disposable incomes can possibly provide a moderate fillip to urban consumption (both goods as well as services), at a time when rural consumption is already on a path of gradual recovery.

On the other hand, the trade outlook imposes downside risks. Trump has already imposed 25% tariffs on all steel and aluminium imports, which could harm domestic industry both directly as well as indirectly (dumping from other countries). While bilateral negotiations will be critical, India is still likely to bear some brunt of tariff-induced shifts in trade flows.

With the recovery in private capex still somewhat tentative, the Government may well have to frontload its capex spending in FY26 in a bid to support domestic growth. Taking on board the Budget’s consumption push while assuming a normal monsoon, we peg our FY26 GDP growth forecast at 6.7%.

Says Suman Chowdhury, Chief Economist and Executive Director, Acuité Ratings & Research, “India’s IIP data for Dec’2025 disappointed with annualized output growth slipping by almost 200 bps from that in the previous month. This casts a doubt on a material recovery of industrial activity in the second half of the current fiscal. While Electricity output remained healthy signaling strong power demand, this was more than offset by weaker manufacturing growth (3.0% YoY); mining growth also softened.

In user-based categories, Capital goods output continued to grow steadily at around double digits, reflecting a gradual rise of investments. Infrastructure and construction goods also remained relatively strong, aligning with ongoing public infrastructure spending. However, the significant contraction in consumer non-durables outlines the continued weakness in household demand and consumption.

We expect IIP growth to pick up in Q4FY25 on the back of improving consumer demand, supported by the wedding season and the Kharif harvest. Adding on to it, government spending, particularly on capital expenditure, is likely to accelerate in the coming months. Nevertheless, overall IIP growth for FY25 may not exceed 4.5%, reflecting the overall slowdown in the domestic economy and the challenging external environment.” 

Table 1: Annualized growth in IIP and its key components

Chart 1: Growth in consumer non-durables remains weak, slipping yet again into contraction in Dec-24