Industrial Production and Economic Analysis
India's industrial production growth experienced a significant slowdown in February, dropping to a six-month low of 2.9%, compared to January's revised estimate of 5.2% and nearly half of last February's 5.6%.
Sectoral Performance
- Power Production: Marginally increased by 3.6% from January's 3.4%, but considerably less than last February's 7.6%.
- Mining: Notable decline to 1.6% this February from 8.1% last year.
- Manufacturing: Almost halved to 2.9% from 4.9% the previous year.
Consumption and Inflation
- Consumer Durables Output: Declined sharply to 3.8% from 12.6% last February.
- Consumer Non-Durables: Contracted by 2.1% for the third consecutive month.
- Retail Inflation: Dropped to 3.61% this February from 5.09% last year, with food inflation at a two-year low of 3.75%.
The decline in consumption demand indicates potential challenges in meeting the government's 6.5% GDP growth target for the 2025 fiscal year.
Index of Industrial Production (IIP) Correlation
February's IIP numbers align with the 14-month low in the manufacturing Purchasing Manager's Index (PMI) survey, which stood at 56.3.
Key concerns include:
- Global economic uncertainty following U.S. President Donald Trump's actions.
- Consumer asset value reductions due to Indian stock market volatility.
Positive Developments
- Within manufacturing, which has a 77% weightage in IIP, 14 out of 23 industry groups recorded growth.
- Leading Growth Sectors: Motor vehicles, trailers, semi-trailers (8.9%), non-metallic minerals (8%), and basic metals (5.8%).
- Capital Goods Output: Accelerated to 8.2% from 1.7% last year, indicating robust investment demand.
Financial Market and Government Intervention
Despite a liquidity squeeze of ₹1.7 trillion, the central bank injected about ₹2.18 trillion into the banking system through rupee/dollar swap arrangements.
Economic Growth Context
Despite possibly missing its growth target, India remains the fastest growing economy, offering some solace to the Centre.
