India’s industrial production registered a mild downtick, with annualized growth printing at 4.0% in Sep-25 from 4.1% (revised up from 4.0% earlier) in Aug-25.  Nevertheless, the headline growth posted a positive surprise vis-à-vis market consensus expectation of ~3%. 

Key highlights of Sep-25 data

• On a sequential basis, the IIP index rose by 0.7% MoM, modestly lower than the median expansion of 0.8% typically associated with September. 
• Among the 25 sub-sectors of IIP, 16 registered a sequential expansion while 9 saw a sequential contraction.
• Sectoral classification (annualized comparison): 
  1. The growth momentum was led by the heavyweight Manufacturing sector, even as Mining and Utilities saw a slowdown, which is likely to have been exacerbated by the heavy rainfall towards the end of the monsoon season (September received 16% surplus rainfall vs. the long period average, with reports of intense downpour in select regions).
  2. Within manufacturing, the sectors such as Electrical equipment, Motor vehicles, trailers, and semi-trailers, Basic metals, Wood and wood products, and Computer, electronic & optical products registered a double-digit expansion. 
  3. Meanwhile, there was a partially offsetting impact from contraction in  Miscellaneous manufacturing products, Furniture, Printing & reproduction of recorded media, Rubber & plastic products, Pharma, medicinal chemical, & botanical products, Paper & products, Wearing apparel, Food products, and Beverages. 
• Sectoral classification (use-based comparison): 
  1. The growth momentum was led by Infrastructure & construction goods, and Consumer durables, both of which clocked a double-digit expansion.
  2. On the other hand, Primary goods saw a moderation – likely a reflection of the slowdown in mining activity, and Consumer non-durables continued to post negative prints (in 5 out of 6 months in the ongoing financial year, the consumer non-durables have contracted on an annualized basis). 

Inferences and outlook

The industrial activity in Q2 FY26 has turned out to be resilient, printing at 4.1% YoY, up from 2.0% seen in Q1. This is despite a hostile trade environment, an uncertain geopolitical backdrop, and monsoon-related transient volatility. 

The heavy lifting in Q2 FY26 was done by Infrastructure & Construction Goods and Consumer Durables. Both point towards the supportive role of domestic policies:

• Cumulative capex disbursal by central and state governments is estimated to have grown at a healthy pace of 32.5% during Apr-Aug FY26, compared to a contraction of 14.8% seen in the corresponding period in FY25. To some extent, the capex disbursal by the general government this year has benefited from a favourable statistical base effect, as general elections and the administrative process of government formation slowed down capex disbursals last year. 
• Consumer durables seem to be benefiting from the decline in the domestic interest rate trajectory, and more importantly, the central government’s provision of massive relief on both direct and indirect taxes (income tax relief announced in the FY26 Union Budget, followed by the substantial reduction in the GST rates from Sep 22^nd).

On the flip side, the elevated geoeconomic and geopolitical uncertainties continue to linger. The cumulative US tariff of 50% on India is going to be disruptive as it could erode India’s export competitiveness, esp. in the labour-intensive sectors, such as textiles, jewellery, auto components, machinery & electrical appliances, etc.

Having said that, amidst ongoing trade negotiations between India and the US, we remain hopeful that the final tariff imposed on India could be adjusted lower, closer to those applicable to other key exporting nations.

Meanwhile, the domestic consumption outlook has brightened. The dual benefit of subdued food inflation and the GST-triggered price correction has lit up the festive season demand. This is likely to get reinforced by a cyclical recovery in rural consumption, aided by a surplus monsoon outturn and a pickup in real agriculture wages. 

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

Table 1: Annualized growth in IIP and its key components