India’s industrial production growth moderated sharply to 4.8% from the 26-month high of 8.0% in Dec-25 (revised up from 7.8% earlier). The headline print undershot market expectations, that had broadly anticipated growth at ~5.7%.

On a FYTD26 basis i.e., Apr-Jan, IIP clocked a growth of 4.0% vs. 4.2% in the corresponding period in FY25. 

Key highlights of Jan-26 data 

• On a sequential basis, the IIP index contracted by 0.8% MoM, in contrast to a median expansion of 0.9% typically associated with the month of January. 
• Among the 25 sub-sectors of IIP, 14 registered a sequential contraction while 11 saw a sequential expansion.
• Sectoral classification (annualized comparison – YoY): 
  1. The growth moderation was broad-based, across all sub-sectors. 
  2. Manufacturing sector growth softened sharply to 4.8% in Jan-26, after two consecutive months of above-8.0% expansion.
     • Within manufacturing, 14 out of 23 sub-sectors posted positive annualized growth, with double-digit expansions led by Furniture (18.1%), Computer, electronic and optical products (18.0%), Base metals (13.2%), Tobacco products (13.0%), and Motor vehicles, trailers & semi-trailers (10.9%).
     • The gains were partly tempered due to the annualized contraction in: Other manufacturing goods (-23.2%), Wearing apparel (-10.3%), Textiles (-2.4%), Leather (-7.7%), Pharma products (-7.2%), Rubber (-3.8%) and Textiles (-3.7%) among others. 
  3. Mining and utilities growth moderated to 4.3% and 5.1%, respectively, easing from multi-month highs recorded in Dec-25.
• Sectoral classification (use-based comparison): 
  1. Infrastructure and construction goods as a sub-group was the sole sector where growth accelerated, reaching a 29-month high of 13.7% YoY.
  2. Capital goods sector growth decelerated to 4.3% from 8.3% in Dec-25. 
  3. Consumer durables growth also moderated sharply to 6.3% YoY from the 13-month high of 12.4% in Dec-25. Meanwhile, consumer non-durables growth slipped into a contraction of 2.7% after recording 8.0% + growth in the prior two months, the strongest since Oct-23. 

Inferences and outlook

The sharp moderation in IIP growth in Jan-26 broadly is in tandem with trends seen across several high-frequency indicators during the month:

• Core industries output moderated to 4.0% from the revised 4-month high of 4.7% in Dec-25. The drag emanated from the extended underperformance in energy sector, partially offset by construction sector output led by cement (+10.7%) and steel (+9.9%). 
• India’s exports to the US de-grew by 21.8% YoY in Jan-26, marking the fifth full and final month of the 50% tariff level. On a cumulative basis, exports to US have contracted by 6.3%YoY in the post-tariff period beginning Sept-25. 
• Infrastructure and construction output was weighed down by a moderation in pace of public capex spend. 
• GST rate cuts-led pick up in urban demand showed signs of normalisation Passenger vehicles growth moderated to 7.2% YoY in Jan-26 vis-à-vis an average ~19% growth during the last three months. 

Going forward, on the global front, recent developments warrant a cautious outlook for industrial activity, as outlined below: 

• The US Supreme Court decision invalidating President Trump’s IEEPA-based US has led to the imposition of a uniform 10% tariff across trading partners, resetting the external trade landscape. As a result, India’s pricing advantage that it briefly enjoyed over Asian peers under the interim India-US trade deal, stands diluted. Having said, ongoing diversification push, via the India-EU FTA along-with the likely operationalisation of the India-UK FTA soon, provides a meaningful cushion over the medium term.
• Escalating US/Israel-Iran tensions have pushed Brent crude prices up by ~9.4% over the week ending 2^nd Mar-26, while exposing nearly 50% of India’s crude oil imports to potential supply disruptions via the Strait of Hormuz. Further, exports to UAE and Saudi Arabia which alone accounted for 11.1% of India’s total exports in CY25, remain exposed to regional spillovers. 
• In addition, with the IMF Industrial metals index up by 19.4% in Jan-26, firming up of industrial metal prices further compounds cost pressures, raising the risk of broader input inflation and weighing on the near-term industrial outlook. 

On the domestic front, with recent data presenting a mixed picture, the recovery in manufacturing activity remains contingent on the following: 

• Basis the SAE for FY26, as per the revised GDP-GVA series (2022-23): 
  1. Private consumption growth is estimated to mark a series low in Q4FY26 (vs 8.7% in Q3 FY26), partly reflecting statistical base effect and seasonal normalisation following the festive and wedding-led demand in the previous quarter. In parallel, as earlier policy-led tailwinds including GST rate cuts, income-tax relief and a benign inflation trajectory gradually fade, momentum in consumer-oriented output could come under pressure. 
  2. In a similar vein, moderation in manufacturing GVA in Q4FY26 following an eight-quarter high of 13.3% YoY in Q3FY26 could imply a commensurate easing in underlying industrial activity. 
• Following front-loaded capex spend in H1FY26, the utilization stands at 77% of FY26 RE, as of Jan-26. Consequently, a contraction of 14.0.% YoY in the next two months to meet the full-year target, could temper infrastructure-linked activity at the margin.
• However, other domestic high frequency indicators augur well for the near-term industrial outlook:
  1. PMI Manufacturing has rebounded from a two-year low in Dec-25 to a four-month high of 57.5 in Feb-26 marking the strongest monthly pace of acceleration in 23 months. 
  2. Meanwhile, growth in GST revenue collections picked up to 8.1% in Feb-26, the highest in five months since the rate-cut implementation last year. 

We hope that the broader geopolitical and geoeconomic headwinds do not intensify. Holding this assumption, domestic consumption-oriented growth impulses could provide tailwinds in H2 FY26 and serve as mitigants to external risks. 

Table 1: Annualized growth in IIP and its key components

Chart 1: IIP and core industry growth in Jan-26 – momentum cools