Exceeding expectations, India’s IIP growth expanded in Jan-25, by 5.0% compared to 3.5%YoY (revised upwards from 3.2%) in Dec-24 (consensus expectation: 3.5%)

Key highlights

• On sequential basis, IIP index expanded by 2.3% in Jan-25. This was higher than the average expansion of 0.6% usually seen in the month of January.
• On annualised basis, headline growth was led by Manufacturing and Mining sub-sectors, which grew by 5.5% and 4.4% respectively – an improvement over previous month’s growth. 
• On the other hand, electricity output increased at a slower pace of 2.4% in Jan-25 compared to 6.2% in Dec-24
• Within the manufacturing industries, the top 3 fastest growing sub-sectors were – 1) Electrical equipment (21.7% YoY), 2) Miscellaneous transport equipment (20.4% YoY) and 3) Furniture manufacturing (16.5% YoY)
• On the other hand, the bottom 3 lagging sectors were 1) Printing and Reproduction of Recorded Media (-9.4%YoY) 2) Leather and Related Products (-5.3%YoY) and 3) Paper and paper products (-3.3%)
• On Use-based classification:
  1. Barring Consumer Non-durables, growth was robust across all sub-sectors. 
  2. Investment-oriented sectors i.e., – Capital goods, Intermediate goods and Primary goods, continued to record a healthy pace of expansion.
  3. Consumer non-durables posted their second consecutive monthly contraction.

Outlook

The uptick in IIP in Jan-25 validates the strength recorded in other high-frequency indicators at the start of the year, such as auto sales, tractor production, E-way bill generation, and PMI-Manufacturing. A robust pick-up in Government capex in the months of Dec-24 and Jan-25 is likely to have supported the pick-up in investment-oriented sub-sectors.

Basis lead indicators for which data is available so far, it appears that domestic growth momentum could pick up further in Q4 vis-à-vis Q3 FY25. The ongoing recovery in rural demand, backloaded pick-up in government capex and some localised consumption boost owing to Maha Kumbh are likely to serve as growth supporters. As such, we believe NSO’s advance estimate for FY25 GDP growth pegged at 6.5% is likely to hold good.

For FY26, industrial growth will be a function of the intensity of domestic consumption recovery and deterioration in the global outlook, especially on the back of tariff wars

1. Consumption is expected 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. 
2. On the other hand, trade and US growth outlook imposes downside risks. Trump’s tariff tantrums continue to impart a high degree of uncertainty to the global trade outlook. In any form, higher tariffs are likely to lead to inefficiencies in global value chains - a cost every nation would have to bear. In addition, US’s own growth engine appears to be stuttering fast, with Atlanta Fed’s Q1 real GDP nowcast tracking a contraction of 2.4% (compared to a growth of 2.3% in Q4-24). 

From India’s perspective, negotiating a bilateral deal quickly or eliminating tariffs on key import items from the US in a zero-for-zero policy may serve well. Policy negotiations are ongoing, with the next few weeks likely to be volatile before reciprocal tariffs come into play in April 25. The final shape of negotiations and the revised tariff schedule will have to be looked at closely for impact assessment at a product and/or sectoral level. 

With the recovery in private capex still remaining 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%.

Below is Acuité Ratings & Research Limited's comment on the Jan’ 25 IIP release:

“India's industrial output posted a stronger-than-expected growth of 5.0% in January, up from 3.5% in December 2024, reflecting a good pick-up in industrial activity, driven primarily by the manufacturing sector’s solid 5.5%(vs 3.4% in Dec’24) expansion as well as an uptick in the Mining output(4.4% in Jan’25 vs 2.7% in Dec’ 24). However, electricity moderation increased from 6.2% to 2.4%, and we expect that the onset of the summer season will bring about a significant surge in demand, helping the overall index in the coming months.

From a use-based perspective, capital goods recorded a robust improvement, accelerating to 7.8% growth, pointing to stronger investment activity and a potential ramp-up in capacity-building efforts. Infrastructure and construction goods have maintained steady growth at 7.0%, as was expected given the increase in public infrastructure spending. On the consumption side, Consumer durables output rose by 7.2%, signalling demand for big-ticket items aided by the wedding season; the same was also seen in the improvement in the consumer non-durables.

Looking ahead, although the IIP number is a welcome recovery, the private capex recovery is still tentative, and the Government may need to frontload spending in FY26 to support growth. The Budget’s consumption push and a normal monsoon could further help demand and industrial recovery. Encouragingly, consumer and public spending are showing signs of improvement. Building on this momentum will be crucial for sustained growth, and for now, we keep our FY25 IIP forecast pegged at 4.5%.”

Table 1: Annualized growth in IIP and its key components

Chart 1: Divergence in performance of consumer durables vs. non-durables widens