India’s industrial production index saw strong growth, but it hides weak consumer demand

Chart.

This spike comes at a time when most observers suggest that India’s growth in the current year will slow down. As such, the IIP data presents a contrasting picture. However, a closer look at the data reveals more about the state of the Indian economy: the sectors that are pulling it up and those that are dragging it down.

What is the IIP?

As the name suggests, the IIP maps changes in the volume of production in Indian industries. It chooses a basket of industrial products — ranging from the manufacturing sector to mining to energy — to create an index by allocating different weights to each sector and then tracks their production every month.

Finally, the index value is compared to where it stood the previous year to understand the economy’s industrial health.

How should the IIP be read?

There are two ways to read the IIP data, based on how the government provides it. The first method sees the different sectors that form India’s industrial base. Table 1 shows the main sectors, their relative weights, and their growth rates in June.

Table 1.

The other way is to look at the “use-based” classification, or examine the use to which industrial goods are put. Table 2 details the weights and growth rates. A look at the growth rate here tells a lot about the nature of demand for industrial goods in the Indian economy.

Table 2.

Primary goods are sourced from nature (such as minerals or fossil fuels) and used in industries. Intermediate goods refer to goods that are incomplete in themselves (say cotton yarn) but used to produce other goods. Capital goods refer to “manufactured” goods, other than intermediate goods, which are used in the production of other goods or services (but not as inputs), such as a tractor or a commercial vehicle. Infrastructure goods are finished goods primarily used in infrastructure.

Then come two categories of consumer goods — non-durables (such as milk or biscuits) for immediate consumption, and durables (such as a TV or a car) with a longer life span.

So, what does the IIP data tell us about the state of the Indian economy?

To find a more robust trend, let’s look at quarterly growth rates in IIP instead of just one or two months. Also, to better understand the contours of India’s economy, let’s focus on the use-based classification.

Table 3 compiles the data, and a clearer picture emerges. The past three quarters — nine months — show a clear trend where consumer goods growth has been fairly tepid, especially for consumer non-durables, while capital goods, infrastructure goods and intermediate goods growth has been very strong.

Table 3.

Madan Sabnavis, Chief Economist of Bank of Baroda, says there is a weakness in consumer demand both in rural and urban India, which are bogged down by higher prices.

“The weakness in demand for consumer non-durables is evident from the corporate earnings of many FMCG (fast moving consumer goods) companies. The high growth in capital and infrastructure goods is in line with the higher infrastructure spending taking place in the country, especially from the government’s side. That also explains why intermediate goods have shown a rise, as everything from metals to machinery is being used here,” said Sabnavis.

Weak growth in the production of primary goods is due to supply disruptions and higher prices, thanks to the events in West Asia. Dipti Deshpande, Senior Director and Principal Economist, Crisil Limited, explained: “The weakness in consumer goods IIP during most quarters of fiscal 2026 was largely driven by pharmaceuticals, electronics, apparel and leather, sectors that were most vulnerable to tariff-related uncertainties.”

Upshot

While overall growth in the IIP is pretty good, a closer inspection reveals a clear trend of weak consumer demand and strong infrastructure demand. But, as Deshpande points out, “Lower growth in consumer goods IIP relative to capital and intermediate goods IIP is more the norm than an exception.”

Monthly data available since April 2024 shows that capital and intermediate goods have consistently outperformed consumer goods output, with trend growth rates of 9.6% and 5.9%, respectively. Sabnavis agrees that the picture painted by the IIP tallies with that provided by earlier overall GDP growth data.