Steep decline: On the Index of Industrial Production
India's factory output performance measured monthly by the Index of Industrial Production (IIP) and released by the Ministry of Statistics and Program Implementation (MoSPI) slowed to an eight-month low of 2.7% in April, at the start of fiscal 2026. It also marked a steep decline, almost halving from last April's 5.2% growth. This correlates with the monthly gauge of the eight core sectors by the Ministry of Commerce and Industry, which posted a 0.5% growth in April, also an eight-month low. More significantly, it is a steep decline from last April's 6.9%. The eight core sectors make up about 40% of the weight of items included in the IIP. This comes on the back of a 4% growth in industrial output for the last fiscal, which was the lowest in the past four years. Of particular concern is the contraction in mining by 0.2%, the first since August 2024. While the absolute value of mining exports has risen in the past decade from $25 billion in FY15 to $42 billion in FY25, its share in exports has fallen from 8.1% to 5.1%. This still constitutes a not-so-insignificant share in India's overall goods exports at a time of great trade volatility. However, both manufacturing and power production also slowed to 3.4% (4.2%) and 1.1% (10.2%), respectively, in April.
While trade and tariff-related uncertainties are most likely to have impacted goods output, the continuing contraction in consumer non-durables' output for the third consecutive month suggests persistently low rural consumption, as essentials such as food make up a significant portion of consumer non-durables. This is a clear indication that despite retail inflation hitting an almost 6-year low at 3.16% in April, it has not translated into higher spending power for rural communities, where consumer non-durables have the most demand. Food prices contracted for the sixth straight month to 2.14%, which led to below MSP rates for most staples at mandis. The government must focus on raising rural incomes by implementing MSPs for farm produce more systematically. This would aid in increasing rural consumption. However, a surge in capital goods output to 20.3% in April, albeit from a low base, indicates confidence in the domestic economy as investors continue with their plans to diversify exports, attempting to rely less on the U.S. With trade-related sectors expected to continue to stay volatile in the near-term, the Centre must push the private sector to increase capital expenditure at home. This will increase incomes, and aid in raising consumption demand. Export-oriented sectors must also aim to ring-fence themselves from tariff, price and supply chain shocks by ensuring a robust domestic presence, while also diversifying outside the traditional export regions of the U.S. and the EU.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Print
a day ago
- The Print
India's GDP victory over Japan is still a year away. Here's why
Equally clearly, the database presents estimates of India's GDP for fiscal year 2025-26 as $4.187 trillion and Japan's as $4.186 trillion—that is, India's GDP exceeds Japan's by 0.02 per cent in 2025-26. From this, many, if not most, analysts have erroneously concluded that this won't happen until March 2026. Why erroneous? Because it is a fiscal year conclusion, and the 'centre of gravity' of an April-March fiscal year is September. So, it is likely that the NITI Aayog CEO, in making his hasty conclusion, was wrong by only four months. As it happens, Subrahmanyam was hasty by approximately a year. Critics of the government's assertion make two points, one relevant and the other 'noisy'. The relevant point is that the IMF World Economic Outlook (WEO) database clearly shows that for the fiscal year 2024-25 (ending in March 2025), India's GDP was $3.9 trillion while Japan's was $4.0 trillion—that is, Japan was 2.6 per cent ahead. Fortunately, both Japan and India have the same fiscal year—April-March—hence adjustments to WEO data are not needed. There has been much discussion about the assertions made by BVR Subrahmanyam, the CEO of NITI Aayog, India's only official think tank. Speaking at a press conference following the 10th NITI Aayog Governing Council Meeting chaired by Prime Minister Narendra Modi and presumably attended by senior bureaucrats, Subrahmanyam said that 'as I speak', India has overtaken Japan in current dollar GDP. Note that his conclusion and inference pertains to current dollar GDP, and we have to contend with the conversion from rupees to US dollars, and from Japanese yen to US dollars. India and Japan numbers First, let us look at the Indian estimate. Data just released by the Ministry of Statistics and Programme Implementation (MoSPI) on Friday shows that India's GDP in current prices for January-March 2025 quarter was Rs 88.17 trillion, or annualised Rs 352.7 trillion. On 23 May, the last market day before Subrahmanyam's assertion, the exchange rate was Rs 85.4/$—that is, current GDP in March 2025 was 352.7/85.4 or $4.13 trillion. Indian nominal GDP is growing by about 10 per cent a year. So, by March 2026, we should expect current India GDP to reach $4.54 trillion. Now we examine the fortunes of Japan's GDP. The seasonally adjusted quarterly estimate of Japan's GDP is 624.9 trillion yen for Q1 of 2025. On 23 May, the exchange rate was 142.6 yen/$; hence Japan's GDP in March 2025 was $4.38 trillion, some 6.1 per cent ahead of India's GDP on the same date. Given that exchange rates change every day, we need to decide as to what exchange rate we should use. Amongst many, we can use a calendar year estimate, a quarterly estimate or a 23 May estimate. But no matter which one we use, it will be wrong because exchange rates do not remain constant, and the future is not asked to see, que sera sera. All of us are concerned with the 23 May estimate, hence the discussion and this note. Japan's nominal GDP growth has averaged 3.4 per cent for the last three years. Assuming this to be the average for 2025-26, the estimate for March 2026 is $4.53 trillion GDP (as 4.38*1.034). So it will be sometime in March 2027 that India's GDP will exceed Japan's in current dollars. Again, que sera sera, the conclusion will depend on what happens to exchange rates. Changes in exchange rates affect nominal dollar GDP calculations. Assume in March 2027 all estimates come true except the $ yen exchange rate changes from 142.7 to 135 (the yen has become stronger by 5.7 per cent), then Japan's GDP will be 5.7 per cent higher and the day of decision will be delayed beyond March 2027. How do we interpret the dash to conclusion by the CEO? As a sports junkie, I recall countless occasions over the last 50 years when a sprinter looked over his shoulder to see his competitor – and lost the race. Also read: GDP data revisions—why India still struggles with sharp variations Lesson for India—good data, bad data What do we learn from his data-heavy exercise? First, haste makes wrong. Second, and more importantly, what difference will it make to the price of tomatoes (as I am often inclined to say) if India GDP is equal to Japan GDP? Third, and most important, and as pointed out by many, what matters is equivalence in per capita GDP, and on this, we are decades away—whether measured in current $ or PPP $ or constant dollars. One final comment. It is unfortunate that in the last ten years, most of the decision-making bureaucracy has lost respect for the data. The bad quality household consumer expenditure data for 2017-18 has still not been released. Several analyses of the 2017-18 data (see the 2022 IMF Working Paper authored by me and my colleagues Karan Bhasin and Arvind Virmani, and several other documents and books) conclude that the 2017-18 data was of such bad quality that the world, and India, needed to examine why it was of such bad quality. By not releasing that data, we have created an atmosphere where it is 'open sesame' for domestic and international scholars to question good Indian data. Food for thought for Niti and decision-making bureaucrats. Surjit S Bhalla is a former Executive Director at the International Monetary Fund. He tweets @surjitbhalla. Views are personal. (Edited by Aamaan Alam Khan)
Indian Express
2 days ago
- Indian Express
India releases provisional GDP estimates: What the data show
The Ministry of Statistics and Programme Implementation (MoSPI) on Friday released two interrelated data sets on India's national income and the size of its economy. The first provides an estimate of India's economic growth in the fourth quarter (Q4, January to March) of the last financial year (2024-25 or FY25). The second provides provisional estimates of economic growth for FY25. Economic growth is measured using two metrics. Gross Domestic Product (GDP) is calculated by adding up all the expenditures made in the economy, including expenditures by Indians in their individual capacity, expenditures by governments, expenditures by private businesses, etc. This provides a picture of the demand side of the economy. Gross Value Added (GVA) looks at the supply side. It effectively measures the contribution of each sector of the economy by calculating and summing the value added (or income) at each stage of production. Both GDP and GVA are linked: they measure the same economic performance but through different routes. Their relationship can be spelled out using the following equation: GDP = (GVA) + (taxes earned by government) — (subsidies provided by government) MoSPI provides GDP and GVA data both in nominal terms (in present day prices) and real terms (after taking away the effect of inflation). Both nominal and real data have their own analytical significance. What makes the estimates released on Friday 'provisional' is that they will be revised over the next few years. For any financial year, GDP estimates go through several revisions. In January, the government releases the First Advance Estimates (FAEs) for that financial year. At the end of February, after incorporating the data from Q3 (third quarter, October to December), MoSPI comes up with the Second Advance Estimates (SAEs). By May-end come the Provisional Estimates (PEs) after incorporating data from Q4. The PEs are then revised over the next two years: the First Revised Estimates come a year later, and the Final Estimates two years later. For FY25, these will come in 2026 and 2027 respectively. Each revision benefits from more data, making GDP estimates more accurate. There are four key takeaways from the data released on Friday. India's nominal GDP grew to Rs 330.7 trillion (lakh crore) by the end of March 2025, a growth of 9.8% over the GDP in FY24. When converted into US dollar terms (dividing by the dollar- rupee exchange rate of 85.559) for international comparisons, by March-end, the size of India's economy was $3.87 trillion. It is noteworthy (Table 1) that the growth of the nominal GDP is less than 10%: at 9.8%, FY25's growth was the third-slowest since the current government took charge in 2014, and the sixth slowest growth rate in nominal GDP since India liberalised its economy in 1991. Table 1 also shows how the nominal GDP growth rate has been decelerating. The Compounded Annual Growth Rate (CAGR) since 2014-15 stands at 10.3% while the CAGR since the start of the second term of the NDA government in 2019 stands at 9.8% While the size of the economy uses nominal GDP data, international comparisons of growth rate are done based on the growth rate of real GDP. This is because inflation differs from country to country, and only real GDP provides a genuine understanding about how many actual new goods and services were produced in a particular year. India's real GDP grew by 6.5% in FY25 to reach a level of Rs 188 trillion. The deceleration in the pace of real GDP growth — compared to FY24, when the growth rate was 9.2% — is even more stark than in the case of nominal GDP growth. The gap between the real and nominal GDP shows the effect of inflation in prices of goods and services. Table 1 shows the CAGR of real GDP now stands at just above 5% since 2019. India's economy has lost its growth momentum over the past decade, with the CAGR being just above 6% since 2014. Table 2 shows the real GVA across the three main sectors of the Indian economy: 🔴 Agriculture and allied activities (such as forestry, etc.); 🔴 Industry (including sub-sectors such as manufacturing, construction etc.); and 🔴 Services (including fields like financial services, trade and hotels etc.) For FY 25, the real GVA grew by 6.4%, losing a step over the 8.6% growth in FY24. But notably, none of the sectors have grown at a CAGR anywhere close to 6% since 2019-20. The GVA data best captures the true momentum of the Indian economy; not only does it provide insight into the health of each sector, it also excludes the effects of taxes and subsidies, which can distort GDP figures. Since 2019-20 (Table 2), manufacturing GVA has registered a slower growth rate (CAGR of 4.04%) than even agriculture and allied activities (4.72%). This explains, to some extent, the high urban — in particular, youth — unemployment in India. It also provides an understanding of why labour has been moving back to Indian villages, and joining agriculture and allied activities. Boosting manufacturing growth has been a cornerstone for all governments, none more than the current one, which started the Make in India initiative in 2016. Indeed, manufacturing is the new battleground globally with the US, Europe, and China getting locked in a trade war to protect domestic manufacturing. The weakness in the Indian manufacturing sector is the most important and worrisome takeaway from the latest economic growth data. Udit Misra is Deputy Associate Editor. Follow him on Twitter @ieuditmisra ... Read More
The Hindu
2 days ago
- The Hindu
Steep decline: On the Index of Industrial Production
India's factory output performance measured monthly by the Index of Industrial Production (IIP) and released by the Ministry of Statistics and Program Implementation (MoSPI) slowed to an eight-month low of 2.7% in April, at the start of fiscal 2026. It also marked a steep decline, almost halving from last April's 5.2% growth. This correlates with the monthly gauge of the eight core sectors by the Ministry of Commerce and Industry, which posted a 0.5% growth in April, also an eight-month low. More significantly, it is a steep decline from last April's 6.9%. The eight core sectors make up about 40% of the weight of items included in the IIP. This comes on the back of a 4% growth in industrial output for the last fiscal, which was the lowest in the past four years. Of particular concern is the contraction in mining by 0.2%, the first since August 2024. While the absolute value of mining exports has risen in the past decade from $25 billion in FY15 to $42 billion in FY25, its share in exports has fallen from 8.1% to 5.1%. This still constitutes a not-so-insignificant share in India's overall goods exports at a time of great trade volatility. However, both manufacturing and power production also slowed to 3.4% (4.2%) and 1.1% (10.2%), respectively, in April. While trade and tariff-related uncertainties are most likely to have impacted goods output, the continuing contraction in consumer non-durables' output for the third consecutive month suggests persistently low rural consumption, as essentials such as food make up a significant portion of consumer non-durables. This is a clear indication that despite retail inflation hitting an almost 6-year low at 3.16% in April, it has not translated into higher spending power for rural communities, where consumer non-durables have the most demand. Food prices contracted for the sixth straight month to 2.14%, which led to below MSP rates for most staples at mandis. The government must focus on raising rural incomes by implementing MSPs for farm produce more systematically. This would aid in increasing rural consumption. However, a surge in capital goods output to 20.3% in April, albeit from a low base, indicates confidence in the domestic economy as investors continue with their plans to diversify exports, attempting to rely less on the U.S. With trade-related sectors expected to continue to stay volatile in the near-term, the Centre must push the private sector to increase capital expenditure at home. This will increase incomes, and aid in raising consumption demand. Export-oriented sectors must also aim to ring-fence themselves from tariff, price and supply chain shocks by ensuring a robust domestic presence, while also diversifying outside the traditional export regions of the U.S. and the EU.
