India’s industrial production slipped to a 14-month low of 0.4% YoY in Oct-25 from 4.6% (revised up from 4.0% earlier) in Sep-25. The weakness was led by index heavy-weight manufacturing sector, largely attributable to the timing of Diwali in 2025. With this, the headline growth posted a negative surprise compared to market consensus expectation of ~3.5%.

On a FYTD basis, i.e., Apr-Oct, IIP has clocked a growth of 2.8% vs. 4.0% in the corresponding period in FY25. 

Key highlights of Oct-25 data

• On a sequential basis, the IIP index contracted by 1.8% MoM, sharply in contrast to the median expansion of 1.8% typically associated with the month of October. 
• This is not unusual, as sequential gyration in months of October and November are typically associated with the timing of Diwali. Loss of working days in the Diwali month, typically pulls down sequential activity. 
• Among the 25 sub-sectors of IIP, only 4 registered a sequential expansion while 21 saw a sequential contraction.
• Sectoral classification (annualized comparison): 
  1. The growth downside was broad-based, across all sectors. 
  2. Growth for both Utilities and Mining sector, slipped into contraction, coming in at -1.8% and -6.9% respectively. Growth in utilities was the lowest recorded in more than 5-1/2 years. 
  3. On the other hand, while manufacturing sector growth remained in positive, coming in at 1.8% - it was the lowest in last 14 months. 
     • The best performance was recorded in sub-sectors of – Computer, electronic and optical products (9.1%), Wood and wood products (7.5%), and Furniture (6.7%).
     • On the other hand, capping the growth was contraction in Miscellaneous manufacturing products (-22.9%), Leather goods (-16.4%), Food products (-8.0%), etc.
• Sectoral classification (use-based comparison): 
  1. The slowdown in growth momentum was yet again broad-based. Among the sub-sectors, Primary goods output slipped into contraction, while output of Capital and Intermediate goods weakened to low single digits. 
  2. Consumer goods production slipped into contraction yet again, coming in at -2.1%, having recovered a month ago. Both, output for consumer durables as well non-durables registered a contraction. 
  3. Infrastructure and construction goods growth at 7.1% was the sole growth supporter. 

Inferences and outlook

The IIP print establishes the divergence in production and consumption indicators in the month of Oct-25. The rationalization of GST rates, effective 22^nd Sep-25, meant that the bulk of demand impact was captured in the month of Oct-25, which was amplified by the festive season buying. 

On the other hand, after front-loading of production in Sep-25 ahead of GST cuts, loss of working days in Oct-25 owing to Diwali and other Hindu festivals appear to have weighed on output. This was also mimicked in other data such as core infrastructure index growth (at 0.8% in Oct-25 vs. 3.3% in Sep-25) as also E-way bills (which slipped from a record high of 13.2 lakhs in Sep-25 to 12.7 lakhs in Oct-25). In tandem, GST collections growth in Nov-25 slipped to 0.7%YoY from 4.6% in Oct-25. 

Having said, we would not read too much into Oct-25 data for two reasons –

One, the seasonal trends are influenced by timing of Diwali.

Two, GST rationalization is leading to inducing changes to production as well as consumption. To get around this, it would be better to – (i) Assess cumulative festive season performance over the months of Sep-Oct-Nov-25. So far, average growth over Sep-Oct-25 at 2.5% is only marginally lower than 3.5% clocked over the same period last year. (ii) Second, let the new GST regime stabilize in terms of production, demand, and price adjustments. A clearer picture on the same is likely to emerge by the end of CY25 in our view. 

Going forward, industrial activity would be influenced by the following: 

Global factors –

• The elevated geoeconomic and geopolitical uncertainties continue to linger. The cumulative US tariff of 50% on India is eroding India’s export competitiveness, esp. in the labour-intensive sectors, such as textiles, jewellery, auto components, machinery & electrical appliances, etc.
• Amidst the ongoing trade negotiations between India and the US, we remain hopeful that a tariff deal is concluded by the end of year, with final tariff imposed on India adjusted lower in the 15-20% range - closer to those applicable on peer nations.

Domestic factors

• Consumption outlook has brightened. The dual benefit of subdued food inflation and the GST-triggered price correction provided a secular boost to festive season sales, across both rural and urban markets. 
• In addition to GST cuts, urban demand seems to be benefiting from the decline in the domestic interest rate trajectory, and more importantly, the central government’s provision of relief on both direct (income tax relief announced in the FY26 Union Budget). Reflecting the buoyancy, growth in personal loans, rose to 14.0%YoY in Oct-25 – to mark the fastest pace of expansion in 16 months, in a broad-based improvement across sub-categories.  
• Rural recovery on the other hand has been reinforced by a surplus monsoon outturn, pickup in real agriculture wages and cash transfers at the state level. 
• Slowdown in pace of Government capex, as run rate of tax collections falls short, could weigh on growth infra oriented sectors, especially in Q4. 

Overall, we remain hopeful that the export-related headwinds will be offset by domestic consumption-oriented tailwinds in H2 FY26.

Table 1: Annualized growth in IIP and its key components

Chart 1: Disappointing IIP and core industry growth in Oct-25