Industrial Production and Economic Insights for India Fiscal 2025
India’s Index of Industrial Production (IIP) for fiscal 2025 averages at 4%, marking the lowest point in four years, indicating a slowdown in industrial activity.
Key Factors Contributing to the Slowdown
- Global economic uncertainties impacting goods exports growth.
- Lower than expected consumption demand growth.
- A decline in private capital expenditure.
Sectoral Analysis
- Despite a rise in power production, the overall IIP grew marginally from fiscal 2023-24 to 2024-25.
- Decline in sector growth from fiscal 2023-24 to 2024-25:
- Mining: From 7.5% to 2.9%
- Manufacturing: From 5.5% to 4%
- Electricity: From 7% to 5.1%
- Consumer Non-Durables experienced a negative growth of -1.6% in fiscal 25 compared to 4.1% the previous year.
- Consumer Durables nearly doubled in growth from 3.6% to 8%, indicating an increase in urban private consumption.
Inflation and Consumption
- Retail inflation was at a six-year low of 4.6% in FY25, mainly due to reduced vegetable prices.
- Rural consumption remains strained due to reduced farm incomes and high food inflation in the previous fiscal’s last quarter.
Monetary and Trade Environment
- The RBI reduced the bank lending rate to 6% in April from 6.5% in January, affecting capex lending rates across banks.
- Uncertainty in economic and trade environments affects private sector investment without government-led domestic consumption boosts.
Goods Exports and MSME Sector
- Flat growth in goods exports in FY25 raises concerns for policymakers, impacting India's MSME sector.
- The MSME sector, which contributes 45.8% to exports, expanded significantly from ₹4 lakh crore in FY21 to ₹12 lakh crore in FY25.
- India must focus on strengthening the Bilateral Trade Agreement under negotiation with the United States to support MSMEs, which employ over 250 million people.
