Growth in India’s industrial production moderated to 4.0% in Aug-25 from an upwardly revised 4.3% in Jul-25 (from 3.5% earlier). The headline growth disappointed market participants, who were expecting growth to fare better, with consensus pegged at ~5.0%. 

Key highlights of Aug-25 data

• On a sequential basis, the IIP index declined by 2.9%MoM in Aug-25, much higher than the average contraction of 0.4% typically seen in the month. Having said, the month of August does not display a strong seasonal trend. In the past 10 years, IIP has contracted in 6 years sequentially, and expanded in 4 years. 
• The sequential weakness was broad based. Among the 25 sub-sectors, only 6 registered a sequential expansion while 19 saw a sequential contraction.
• On the sectoral side, Mining sector led annualised growth, as output expanded after a gap of 4 months.  Growth rose at the fastest pace in 14 months, at 6.0%. A favourable statistical base coupled with an improvement in activity levels as monsoon intensity reduced in H1 Aug-25, appears to have provided support. 
• Growth in Electricity sector also posted a moderate improvement with a 5-month high print of 4.1% compared to 3.7% in Jul-25. 
• In contrast, index heavy-weight manufacturing sector saw a moderation in growth, from a 21-month high of 6.0% in Jul-25 to 3.8% in Aug-25. 
  1. Within manufacturing, the three worst performers were Printing and reproduction of recorded media (-16.3%YoY), Miscellaneous manufacturing items (-11.5%YOY), and Leather and products (-9.3%YoY). 
  2. There was a marginal offsetting impact from expansion in production of Tobacco products (23.4%), Basic metals (12.2%YoY), and Electrical equipment (11.4%). 
• On the use-based side, Infra & Construction goods sector, expanded at the fastest pace in 21-months at 10.6%. This was on the back of strong pace of Government capex spending seen since the start of FY26. 
• Growth in primary goods production recovered to a 7-month high of 5.2% YoY after recording contraction for the last four consecutive months
• Further, Consumer durable output growth slowed to 3.5% YoY while consumer non-durable contracted to an 8-month low of -6.3% YoY. 

Inferences and outlook

The moderation in IIP growth for Aug-25 contrasts with the trend seen in some of the high frequency indicators in the month. 

• Core industry output growth catapulted to a 13-month high of 6.3%YoY in Aug-25 from 3.7% in Jul-25.
• PMI manufacturing inched higher to 59.3 in Aug-25 from 59.1 in Jul-25 – marking the highest level in 17 years, driven by robust domestic demand and production expansion

The manufacturing sector within the IIP appears as the weakling, possibly owing to -

• The imposition of 50% tariff by US on India coming fully into effect in Aug-25
• PM Modi’s announcement of GST rate rationalization on 15^th Aug-25 may have led to some calibration in production intention from the perspective of inventory management.  

Looking ahead, industrial activity here on is likely to be influenced by opposing economic forces. 

On the global front, ongoing disruption owing to US imposed tariff continues to deepen. The 50% tariff that came on board from Aug-25 end (25% reciprocal tariff + 25% penalty) is likely to have a substantial impact on India’s exports to the US, esp. labour-intensive export-oriented sectors such as textiles, jewellery, auto components, machinery & electrical appliances among others. Further, President Trump will be imposing 100% tariff on branded and patented drugs from 1st Oct-25. Although India is predominantly a supplier of generics to the US, this is a developing story that remains on watch. The announced hike in fees for new H1B visas is yet another pain point for India. Amidst the ongoing trade negotiations, we remain hopeful that the final tariff imposed on India could possibly get adjusted lower closer to those applicable to other key exporting nations.

On the other hand, domestic outlook, especially with respect to consumption remains conducive, having received a shot in the arm, from the reduction in GST on several goods. As per media reports, festive season has started on a good note, for several consumer faced sectors.  GST rationalisation, lower income tax rates announced in the Budget, moderation in inflation and ongoing transmission of past rate cuts augurs well for urban consumption. 

This is likely to get reinforced by continuing rural consumption recovery, which finds added support from an above normal Southwest monsoon this year, improving real agriculture wages and decelerating food inflation. We remain hopeful that the onset of the festive demand accompanied by GST rate rationalization will likely provide the much-needed tailwind to industrial production growth over the remainder of FY26, at a time when exports could turn out to be a headwind. 

Table 1: Annualized growth in IIP and its key components

Chart 1: Growth in core and IIP diverged in August-25