Is India’s mega GDP growth story hiding a factory slowdown? Here’s the reality check

A COOL SUMMER has given India’s industrial sector the chills. Growth in the country’s Index of Industrial Production (IIP) — a measure of the health of the industrial sector — has been on a consistent decline for the past one year, touching a 10-month low of 1.5% in June 2025; the number was 4.9% in June 2024. The growth of IIP’s major components — mining, manufacturing, and electricity — slumped during the one-year period between June 2024 and June 2025, with the mining sector being the worst affected. From a growth of 10.3% in June last year, mining witnessed a contraction of 8.7% in June this year. Meanwhile, electricity contracted by 2.6% this year, compared with a growth of 8.6% last year. And manufacturing growth remained almost flat at 3.9%, compared with 3.5% during the year-ago period. The stress signals IIP in primary goods, too, has witnessed contraction; and growth in capital goods, at 3.5%, has been marginally lower in June, versus 3.6% in the year-ago period, despite the government’s frontloading of capital expenditure in the current fiscal. Data indicates that consumption remains weak. In fact, data from the Ministry of Statistics and Programme Implementation (MoSPI) indicates that consumer durables, which posted 8.8% growth in IIP in June 2024, slowed down to 2.9% in June 2025. There has also been contraction in IIP for consumer non-durables in this period like last year; while the category saw contraction of 1% in June 2024, the number marginally improved to -0.4% in June 2025. IIP growth in both consumer durables and consumer non-durables has been declining since November 2024. The decline is sharper for consumer durables, which has slowed to 2.9% in June, compared with a 14.1% growth in November. One key indicators gyrating in the negative zone, while the other hitting the slow lane in the past couple of months, points to a severe consumption stress in the economy. Industry experts say this is because of low sales on account of a comparatively cooler summer and a higher base effect from the previous year. “Last year, we had a very hot summer… this summer, it rained throughout… It was a washout summer,” B. Thiagarajan, MD, Blue Star Ltd, tells Fortune India. He explains that in the month of March, anticipating a normal summer, dealers stocked up on air-conditioners. “Reports of compressor shortage also led to inventory build-up. With working capital getting blocked, they did not invest in other durables like washing machines, refrigerators, etc. in April-June,” he says. This is likely to have a bearing on the upcoming quarterly results of the firms, say sectoral previews by several brokerages. “Appliances are likely to post among the weakest quarters — courtesy a summer season washout (room air-conditioners, coolers and even fans impacted) and general weakness in consumption persisting in Q1FY26,” said Nuvama First Call, in a results preview on July 9. YES Securities, however, is of the view that consumer durables will likely pick up as the festive season approaches. “De-growth in summer products is on the back of unseasonal rains coupled with extremely high base of the previous summer, which was exceptional. We believe demand is expected to bounce back ahead of the festive season, given that rural has started to bounce back,” said YES Securities in a consumer durables sector update released on July 7. That said, Crisil chief economist Dharmakirti Joshi points out that the deceleration is broad-based. “Declining mining (-8.7% in June versus -0.1% in May) and electricity (-2.6% vs -4.7%) dragged overall IIP growth lower. The early onset of monsoon this year cooled electricity demand and affected mining activity. The first quarter saw weaker IIP growth relative to the previous quarter (2% vs 4%). Consumer goods, mining and electricity saw weaker growth even as some industrial goods improved,” says Joshi. Other sectors, too, are feeling the heat. For instance, the beverages space has posted a 6.5% contraction year-on-year (YoY) this June; last year, beverage manufacturing grew 0.2% in June. While the textiles sector has marginally improved with the IIP growing to 1.2% from a contraction of 1.5% in the past one year, growth in the apparel manufacturing sector has also picked up to 4.2% from 2.1% in the year-ago period. And furniture manufacturing has taken a huge knockdown with growth slipping from 18.6% in June 2024 to 10.3%, while contraction in other manufacturing has grown from -12.9% to -17.6%. IIP vs GDP IIP growth has been consistently falling since January this year. However, in the same period, India’s economic growth has bounced back and the momentum, according to the finance ministry, continues in the first quarter of the current fiscal. India posted a 7.4% GDP growth in Q4FY25, surpassing market expectations. Yet another very significant development, which should have at least bolstered the core segments in the index, is a major push to capital expenditure towards the end of the previous fiscal and a massive front-loading in the current one. In the first two months of FY26, the Centre deployed capital expenditure of ₹2,21,354 crore, up 54% from ₹1,43,625 crore spent in the corresponding period of FY25. The capex deployed in the first two months of this fiscal is around 20% of the FY26 target of ₹11.21 lakh crore. Also, towards the fag end of the previous fiscal, the government ensured faster absorption of capital expenditure making up for the initial lag in spending on account of general elections in 2024. This March saw a record ₹2.4 lakh crore worth of capital expenditure. In effect, between March and May this year, the government has deployed more than ₹4,61,354 crore as capital expenditure. The question is that since capital expenditure touches at least three core industries (cement, steel, and electricity) of the eight core industries in the IIP, why is it that the index is on a constant decline even as there is an uptick in the GDP and public capital expenditure during the same period? Tariff tantrums Economists are of the view that the divergence in GDP and IIP is not new as GDP captures value addition while IIP measures only the output; the dichotomy plays out sometimes, but tariff uncertainties could be one of the factors causing the downward spiral in IIP. “We need to understand that if the input cost got reduced or did not increase in the way it grew in the previous year, it will get reflected in the value addition. So, GDP may go up, while IIP may remain stagnant,” economist Sunil Kumar Sinha, professor at the Chandigarh-based Institute for Development and Communication, tells Fortune India. Sinha says that ever since Donald Trump returned for his second term as U.S. President, there has been a lot of setbacks for Indian industry in terms of sentiment. “Due to this, the exuberance we witnessed last year with Covid becoming a distant memory, and the Russia-Ukraine war too settling, has waned,” he says. Sinha adds that industry had started thinking on the lines of stepping up production and capital expenditure. But that sentiment was impacted ever since the tariff uncertainties began. “No one is now really talking about making fresh investments. Right now, the current uncertainty will lead to an additional slowdown,” he says. Manufacturing, Sinha explains, may be nearly 20% of the economy, and IIP data is dependent on it. But exports, too, are a major component of IIP, he adds, and India has a “diversified exports portfolio with engineering goods, petroleum products, toys, etc. Shrinking global demand will impact our industries.” Incidentally, in June, the combined Index of the eight Core Industries (ICI) increased by 1.7% (provisional) compared to June 2024. The production of steel, cement, and refinery products also recorded positive growth in June. But there is more than meets the eye. “Although the YoY growth in core output improved slightly to 1.7% in June 2025 from 1.2% in May 2025, it remained decidedly tepid, with as many as five of the eight sectors recording a contraction in their output in the month,” says Aditi Nayar, chief economist, ICRA Ltd. Festive relief Industry, meanwhile, expects the festive season to offer some respite. “Normally, when the summer is bad, ACs and refrigerators do well during the festive season,” says Thiagarajan. He says that dealers are already planning Independence Day sales in some markets, and some pick-up is expected. “But Onam will be the beginning of the festive season followed by Durga Puja and Diwali. One has to weather the storm till then,” he says. A reprieve during the festive season will undoubtedly be welcome, but the air will clear only when the tariff-related issues are sorted out. Although India has inked several significant trade pacts — including the recent one with the U.K., a deal with the U.S. will boost sentiment. Till then, industry is likely to keep its fingers crossed. Fortune India is now on WhatsApp! Get the latest updates from the world of business and economy delivered straight to your phone. Subscribe now.

Is India’s mega GDP growth story hiding a factory slowdown? Here’s the reality check

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