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Growth pangs: On industrial activity
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Context
India’s Index of Industrial Production (IIP) growth averaged 4% in FY 2024–25, marking its lowest level in four years, highlighting a broad slowdown in industrial activity amid global uncertainty, weak consumption, and subdued private investment.
Trends in Core Industrial Sectors
- Declining Industrial Growth: The IIP growth fell from 9% in FY24 to 4% in FY25, reflecting deceleration across manufacturing, mining, and electricity sectors.
- Sectoral Dip – Mining and Manufacturing: Mining output dropped steeply from 5% to 2.9%, while manufacturing slowed from 5.5% to 4%, indicating persistent supply chain issues and weak industrial demand.
- Electricity Output Cyclically Supported: Electricity generation rose from 6% (Feb) to 6.3% (Mar) due to seasonal summer demand, though annual growth fell from 7% to 5.1%.
Diverging Consumption Patterns
- Rural Stress – Consumer Non-Durables Degrowth: Consumer non-durables saw a degrowth of -1.6% in FY25 from +4.1% in FY24, driven by strained rural demand due to food inflation and falling farm incomes.
- Urban Resilience – Durable Goods Uptick: Consumer durables grew from 6% to 8%, signaling urban demand recovery, likely supported by lower lending rates and pent-up discretionary spending.
- Inflation Trends – Mixed Impact: Though retail inflation fell to 4.6% (lowest in 6 years), the drop in vegetable prices adversely affected agricultural earnings, further dampening rural consumption.
Exports and MSME Sector Pressure
- Flat Export Growth – MSME Exposure: Goods exports remained flat in FY25, raising concerns about the MSME sector, which contributes nearly 46% to total exports.
- MSME Scale vs. Vulnerability: Despite expanding from Rs 4 lakh crore (FY21) to Rs 12 lakh crore (FY25), MSMEs, especially micro units, remain vulnerable to external shocks and trade disruptions.
- Strategic Trade Leverage – Need for US Pact: India must strategically conclude the Bilateral Trade Agreement with the US, its top trading partner, to safeguard 60 million MSMEs and the 250 million jobs they generate.
Practice Question
Q. Discuss the recent trends in India’s Index of Industrial Production (IIP) with reference to sectoral performance and consumption dynamics. How do these trends reflect the broader economic stress in MSMEs and export sectors?More Articles
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