India’s Industrial Engine Cools in May, But Manufacturing Keeps the Spark Alive

India’s industrial output growth slowed to 1.2% year-on-year in May, missing Reuters’ forecast of 2.4% and signaling a cautious start to FY26. The April-May cumulative growth stood at 1.8%, reflecting a broader deceleration in industrial momentum amid global headwinds and domestic demand moderation.

 

However, the manufacturing sector emerged as a bright spot, expanding by 2.6% year-on-year, driven by robust activity in pharmaceuticals, electronics, and auto components. This resilience helped cushion the overall Index of Industrial Production (IIP), which was weighed down by weak mining and electricity output.

 

Key Highlights:

 

- May IIP growth: +1.2% YoY (vs. 2.4% forecast)

- April-May IIP growth: +1.8% YoY

- Manufacturing output: +2.6% YoY

- Mining & electricity: Dragged overall growth

- Capital goods & consumer durables: Remained sluggish

- Outlook: RBI’s June rate cut and strong government capex may revive momentum

 

Analysts point to a high base effect, weak exports, and cautious consumer sentiment as key drags. Capital goods output—a proxy for investment—remained flat, raising concerns about private sector capex. Consumer durables also underperformed, hinting at restrained household spending.

 

Despite the soft print, optimism persists. The manufacturing PMI stayed above its long-term average, and easing inflation (CPI at 2.8% in May) could support demand recovery. With the RBI’s recent rate cut and continued public investment, industrial growth may regain pace in the second half of the year.

 

Sources: EY Economy Watch June 2025, Reuters, Ministry of Statistics and Programme Implementation (MoSPI)