Factory output growth slows to a six-month low of 2.9% in Feb with deceleration across sectors

Electricity was the only sector to register a pickup, with its output growing by 3.6 per cent in February, higher from 2.4 per cent in the preceding month. It was, however, lower than 7.6 per cent in the year-ago period. “The moderation in mining and manufacturing output more than offset the improvement in electricity output, weighing on the overall growth number,” Rajani Sinha, chief economist, CareEdge Ratings said.

Growth in output of capital goods — an indicator of investment — was a positive sign, despite moderating to 8.2 per cent from 10.3 per cent in January. The growth was, however, higher than 1.7 per cent growth in February 2024. Infrastructure or construction goods output also grew firmly at 6.6 per cent in February even as it was slightly lower than 7.4 per cent in the previous month and 8.3 per cent in the year-ago period.

“Worryingly, the output growth of all the sub-sectors at the use-based level declined in February 2025 compared to the previous month, after a gap of five months. This indicates the muted and volatile nature of industrial output growth…the silver lining was the decent growth in capital and infrastructure goods at 8.2 per cent YoY and 6.6 per cent YoY, respectively, in February. This suggests sustained-but-moderated growth in investment demand and construction sector output,” Paras Jasrai, senior economic analyst at India Ratings, said.

Consumption trend faltered, with both consumer durables and non-durables registering a sequential deceleration. Consumer durables output — an indicator of consumption demand — slowed to 3.8 per cent in February as against 7.2 per cent growth in the previous month and 12.6 per cent in the year-ago period. Consumer non-durable goods output, which reflects fast-moving consumer goods, continued to be in the negative territory for the third consecutive month at (-)2.1 per cent in February compared with (-)0.3 per cent growth in the previous month and (-)3.2 per cent in the year-ago period.

Experts said this reflects demand-side fragility and hence, requires close monitoring. “Monitoring consumption trends remains crucial due to the ongoing unevenness in the domestic demand landscape. While rural demand has been improving, the lagging urban demand continues to be a cause of concern,” Sinha said.

Though consumption demand seems to have weakened, economists said the recent rate cut by the Reserve Bank of India and the easing food prices will help in a pickup going ahead. “There is light at the tunnel with the substantial easing of food inflation in the recent time period and monetary easing in February and April 2025, the effect of which would be felt with a lag in FY26…with the onset of the summer, the power demand has seen a pickup as it was up 6.6 per cent YoY in March 2025, at a nine-month high. In addition, there has been an indication of pickup in government spending in March 2025 with the usual rush to meet capex targets both by state and union governments,” Jasrai said. India Ratings expects industrial output growth to be around 4 per cent in March.

Sectorally, as per the IIP data, 14 out of the 23 sectors in manufacturing registered growth in February, with computer, electronic and optical products (10.6 per cent), electrical equipment (9.3 per cent), and motor vehicles, trailers and semi-trailers among the higher growing sectors. Manufacturing of leather and related products((-)9.4 per cent), paper and paper products ((-)9.1 per cent), and printing and reproduction of recorded media ((-)8.6 per cent) were among the significant non-performers.

On a cumulative basis, industrial output growth was at 4.1 per cent during April-February as against 6 per cent in the year-ago period. “The electricity sector remains a consistent outlier with 5 per cent growth, and we will continue to see it growing for the next few months as the demand for electricity increases due to the onset of summer. While we are seeing the industrial sector post uneven numbers, this volatility flags the risk of plateauing momentum. The divergence between investment and consumption needs close monitoring in the run-up to FY26,” Sankar Chakraborti, MD & CEO, Acuité Ratings & Research Ltd said.