The revamped Industrial Production Index (IPI) published by the Ministry of Statistics and Programme Implementation (MoSPI) on Jun 1, 2026 with 2022-23 as the base year, underwent further refinement. For deflation (234 out of 463 items within IPI, accounting for ~36% of the total weight, are compiled using value-based production data), the WPI has now been substituted by the Output PPI, which is believed to provide greater granularity and is also in line with international best practices.

Post the quick operational upgrade, India’s industrial production recorded its strongest activity in 5 months, expanding by 5.1% YoY in May-26, up from 4.9% in Apr-26. This turned out to be higher than the market consensus expectation of ~4.5% expansion.

Key highlights of May-26 data 

• On a sequential basis, IPI increased by 3.81% MoM, lower than the series average of 4.45% associated with the month of May. 
• Sectoral classification (annualized comparison): 
• The upside in the headline IPI growth was single-handedly led by Electricity & Gas Supply, with the 9.9% growth under this category accelerating to its highest level in 24 months. The predominance of heatwaves during May-26, triggered by the onset of the El Nino phenomenon, is likely to have propelled the demand for power.
• Growth decelerated in all other categories, except Mining & Quarrying, which, while posting a sequential improvement, remained in contraction territory.
• Within Manufacturing, 16 out of 23 sub-sectors recorded positive growth. The top 3 performing sub-sectors were Electrical equipment, Fabricated metal products, and Motor vehicles, trailers & semi-trailers.
• Use-based classification (annualized comparison): 
• The upside in the headline IPI growth was led by Primary Goods, Consumer Non-durables, Consumer Durables, and Capital Goods.
• Notably, continued momentum in public capex resulted in two consecutive months of double-digit expansion in Capital Goods. 
• Meanwhile, Intermediate Goods was the only category that witnessed a marked deceleration. 

Inference and outlook

We now have three months of IPI data since the start of the Middle East Crisis on Feb 28, 2026. Annualized growth averaged at 4.3% between Mar-26 and May-26, below the average growth of 5.1% seen in the previous three months, between Dec-25 and Feb-26. While the loss of momentum was anticipated on account of the massive energy disruption triggered by the closure of the Strait of Hormuz, the magnitude of the setback is reassuringly modest.

However, there are pockets of stress (Wood, Tobacco, Non-Metallic Minerals, Furniture, Basic Metals, etc.) within the manufacturing domain that seem to have borne the burden of the Middle East energy crisis. 

Encouragingly, the disruption on account of the Middle East Crisis has begun to ease, esp. after the signing of the MoU between the US and Iran on Jun 17, 2026. Stakeholders, including market participants, expect this to culminate in a peace deal within the next 60 days, thereby paving the way for a durable de-escalation of the geopolitical risks in the region. The single most important marker of the current geopolitical risk, viz. crude oil prices, has shown considerable improvement in recent weeks on the back of this anticipated development.

This is likely to result in the recouping of lost industrial activity momentum, especially in sectors that bore the brunt of the closure of the Strait of Hormuz.

Having said, weather-related macro risks have intensified. As per the IMD’s forecast, the southwest monsoon season is likely to see a 10% rainfall deficit on a cumulative basis. This is estimated to contract Agriculture GVA for Crops by 1% in FY27. However, the dismal start in Jun-26, with a substantial cumulative rainfall deficit of 42%, has raised the odds of a worse-than-anticipated outcome for the season. This concomitant slowdown in rural income growth can be expected to exert a downward impact on rural demand for both goods and services. This is unlikely to be offset by urban demand, which is already facing the brunt of higher prices for fuel items and services.

Overall, while the easing of geopolitical risks is encouraging in the immediate term, elevated input prices and a severe monsoon deficiency amidst the tapering impact of GST rationalization could weigh on industrial activity later in the year. 

Table 1: Annualized growth in IPI and its key components

Chart 1: While the slowdown in IPI in the postwar period is in line with some of the other proxy indicators, the loss in momentum appears relatively moderate