INDEX OF INDUSTRIAL PRODUCTION (IIP) : ECONOMY
NEWS: Factory output growth slows to a six-month low of 2.9% in Feb with deceleration across sectors
WHAT’S IN THE NEWS?
India’s Index of Industrial Production (IIP) growth slowed to 2.9% in February 2025, the lowest in six months, reflecting broad-based weakness across manufacturing, mining, and electricity sectors. The decline was driven by high base effects, weak demand, and global uncertainties, despite a rise in capital goods output.
What is IIP? – The Basics
• The Index of Industrial Production (IIP) is a monthly composite indicator that measures the volume of industrial output in the Indian economy.
• It is compiled and released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI).
• The index is base-weighted, with the current base year being 2011-12 = 100.
• IIP helps in tracking the performance of the industrial sector, making it a key tool for policymakers and economists.
Core Sectoral Composition of IIP
• The IIP is structured around three major sectors, each with assigned weights:
• Manufacturing – accounts for 77.63% of the total index
• Mining – contributes 14.37%
• Electricity – contributes 7.99%
• Given the dominance of manufacturing, any variation in this sector significantly impacts the overall IIP figure
What Happened in February 2025?
• Industrial growth, as measured by IIP, slowed to 2.9% in February 2025, marking the lowest growth in the last six months
• This figure came in below market expectations, as Reuters had projected 4% growth
• The deceleration points to broad-based weakness across the industrial economy
Sectoral Performance Breakdown (YoY comparison)
• Mining: Grew by only 1.6% in Feb 2025 compared to 8.1% in Feb 2024. Indicates decline possibly due to seasonal slowdown, regulatory issues, or commodity price volatility
• Manufacturing: Slowed to 2.9% from 4.9% in the previous year. Weak recovery despite earlier reforms and production-linked incentives (PLI)
• Electricity: Registered 3.6% growth compared to 7.6% in Feb 2024. May reflect lower demand, milder weather, or temporary infrastructure constraints
Use-Based Classification Analysis
• Capital Goods: Strong growth of 8.2% compared to 1.7% last year. Indicates a possible revival in private investments and infrastructure activity
• Consumer Durables & Non-Durables: Recorded slower growth, signaling weak consumer sentiment, especially in rural India. High inflation and job insecurity may have dampened household consumption
• Intermediate Goods: Moderate performance may reflect slowdown in supply chains, inventory buildup, or low manufacturing demand
Reasons Behind the Industrial Slowdown
• High Base Effect: Feb 2024 recorded strong growth, making year-on-year comparisons appear weaker in 2025
• Global Uncertainty: Geopolitical tensions, especially in Europe and West Asia, have affected global trade. Sluggish demand from key export markets like the US and EU impacted India’s production outlook
• Domestic Constraints: Rising input costs, including energy and logistics, have increased pressure on manufacturers. Tighter credit conditions have made access to working capital difficult for MSMEs. Private consumption, especially in lower-income segments, remains subdued post-pandemic
• Manufacturing Recovery Challenges: The sector continues to face the aftermath of COVID-related disruptions, inflation pressures, and global supply chain dislocations
• Mining Sector Issues: Possible reasons for deceleration include regulatory delays, environmental clearances, and seasonal factors
Wider Economic Implications
• GDP Growth Impact: Industrial output is a significant component of Gross Value Added (GVA). A weak IIP reading could negatively affect Q4 FY25 GDP figures, possibly dragging overall annual growth
• RBI’s Policy Dilemma: The slowdown may increase calls for monetary easing, but inflation concerns may keep the RBI cautious. Balancing industrial revival with inflation management remains a challenge
• Employment Concerns: Manufacturing is a labor-intensive sector; any prolonged slowdown could affect job creation, especially for semi-skilled and unskilled labor
• Capex Revival Indicator: Strong growth in capital goods suggests green shoots of private sector investment. It could be a sign of medium-term confidence in India’s industrial expansion plans
Conclusion – Why the IIP Trends Matter
• Industrial growth is crucial for India to achieve its $5 trillion economy vision
• The current slowdown reflects structural and cyclical weaknesses in the real economy, even if GDP headline numbers appear robust
• Policymakers must recognize the fragility of industrial recovery and take targeted action
Policy Suggestions Going Forward
• Support for MSMEs: Simplify compliance norms, improve access to credit, and offer subsidies for technology upgrades
• Boost Rural Demand: Strengthen schemes like PM-KISAN, MGNREGA, and improve rural infrastructure and connectivity to enhance consumption
• Ease of Doing Business Reforms: Address regulatory bottlenecks, reduce logistics costs, and improve transparency in approvals
• Focused Sectoral Interventions: Offer incentives for electricity and mining sectors to expand capacity and modernize operations
• Push for Manufacturing-led Growth: Expand PLI schemes, promote value addition, and improve global competitiveness in strategic sectors like electronics, textiles, and defense
Source: https://indianexpress.com/article/business/factory-output-growth-slows-to-a-six-month-low-of-2-9-in-feb-with-deceleration-across-sectors-9939546/#:~:text=Factory%20output%20growth%20slowed%20to,(NSO)%20on%20Friday%20showed.