May factory output growth drops to 9-month low as rains hit power demand
Production of electricity was down 5.8 per cent year-on-year in May – the first time it was down on a year-on-year basis since August 2024. In fact, the year-on-year fall in electricity generation in May was the most since June 2020, when much of the country had come to a halt due to the coronavirus pandemic. The decline in electricity output in May can be attributed to the early onset of the southwest monsoon, which made landfall on May 24, the earliest it has done so since 2009.
Along with electricity, mining output also declined in May, albeit by a marginal 0.1 per cent. In April, it had declined by 0.2 per cent. Rains affect mining activities. Meanwhile, manufacturing sector output – which makes up more than three-fourth of the IIP – rose by 2.6 per cent year-on-year, down from 3.1 per cent in April and 5.1 per cent in May 2024.
Consumer weakness
According to the latest statistics ministry data, production of consumer goods was lower in May compared to a year ago. While output of non-durable goods fell 2.4 per cent – down for the fifth time in six months – that of durable goods was 0.7 per cent lower. This is the first time in one-and-a-half years that production of consumer durable goods has fallen on a year-on-year basis. According to Paras Jasrai, Associate Director and Economist at India Ratings & Research, the contraction in non-durable goods' output in May 'points to weak goods consumption by households'.
Output of primary goods also fell in May and was down 1.9 per cent after having posted a 0.2 per cent fall in April. However, growth in capital goods output was in the double-digit territory in May for the second month in a row, following up a 14 per cent growth in April with a 14.1 per cent increase, indicating 'sustained progression in investment activity in the economy', Jasrai said. According to data on the government's finances, also released on Monday, the Centre's capital expenditure in May was up 39 per cent year-on-year at Rs 61,564 crore. For April-May, the Indian government's capex was up 54 per cent from last year at Rs 2.21 lakh crore.
Production of intermediate and infrastructure goods was up 3.5 per cent and 6.3 per cent, respectively. In April, output of intermediate goods had increased by 3.5 per cent, while that of infrastructure goods had risen 4.7 per cent.
'Overall, use-based data and manufacturing IP sectoral data shows capital-intensive sectors (metals, machinery, auto, construction) continue to outperform, while consumer durables and non-durables output remains subdued, pointing towards limited impulses from private consumption,' Barclays economists Aastha Gudwani and Amruta Ghare said in a note.
A decline in industrial growth in May was expected due to the early rains, with commerce ministry data released on June 20 showing core sector output – which accounts for 40 per cent of the IIP – had increased by a mere 0.7 per cent in May, the least in nine months. Core sector data – which includes sectors such as coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity – is seen as a leading indicator of industrial activity in the country.
For the first two months of 2025-26, IIP growth clocked in at 1.8 per cent, less than a third of the 5.7 per cent increase posted in April-May 2024.
Looking ahead, industrial growth is seen subdued, with daily data showing power generated in June was down 2.1 per cent as of June 29. 'This may keep the factory output growth around 1.5% yoy (year-on-year) in June 2025, in Ind-Ra's view,' Jasrai said. IIP data for June will be released on July 28.
Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy.
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