India’s Factory Output Stumbles: Early Monsoon Blamed for Nine-Month Low
India’s industrial engine witnessed a significant slowdown in May, with factory output growth hitting an alarming nine-month low. Data released by the **Ministry of Statistics and Programme Implementation (MoSPI)** on Monday revealed that the **Index of Industrial Production (IIP)** expanded by a mere 1.2% last month. This marks a stark deceleration from April’s 2.6% growth and a significant drop from the robust 6.3% recorded in May 2024. The primary, somewhat unexpected, culprit? Unseasonal, early rains that dampened electricity demand across the nation.
The Chilling Effect of Early Rains on Power and Mining
The most dramatic impact was felt in the power sector. Electricity production plunged by 5.8% year-on-year in May, marking the first annual contraction since August 2024. In fact, this was the sharpest year-on-year decline in electricity generation since June 2020, when the **COVID-19 pandemic** brought much of the country to a standstill. This unprecedented dip is directly linked to the early arrival of the **southwest monsoon**, which made landfall on May 24 – its earliest onset since 2009. Cooler temperatures naturally reduced the need for air conditioning and other power-intensive activities.
Accompanying the electricity slump, mining output also saw a marginal decline of 0.1% in May, following a 0.2% contraction in April. Mining operations are inherently sensitive to weather conditions, and heavy rains can significantly impede activities, explaining this dip.
Manufacturing’s Muted Pace: Core of the Economy Under Pressure
The **manufacturing sector**, which forms the backbone of the IIP, accounting for over three-fourths of the index, also experienced a noticeable deceleration. While still registering growth, its year-on-year expansion slowed to 2.6% in May, down from 3.1% in April and 5.1% in May 2024. This broad-based slowdown suggests underlying pressures beyond just weather-induced disruptions.
Consumer Spending Weakness Emerges as a Key Concern
Perhaps the most troubling aspect of the latest statistics is the discernible weakness in consumer demand. Production of consumer goods saw a decline compared to a year ago. Output of **non-durable goods**, reflecting everyday necessities, fell for the fifth time in six months, contracting by 2.4%. More significantly, **durable goods** production, which includes items like electronics and appliances, registered a 0.7% decrease – its first year-on-year fall in one-and-a-half years.
**Paras Jasrai**, Associate Director and Economist at **India Ratings & Research**, articulated the concern, stating that the contraction in non-durable goods output in May “points to weak goods consumption by households.” This suggests that ordinary Indian households might be tightening their belts, impacting a critical driver of economic growth.
Investment Activity: A Beacon of Resilience
Amidst the subdued figures, one sector offered a silver lining: **capital goods**. This segment, crucial for future economic expansion, recorded double-digit growth for the second consecutive month, with a robust 14.1% increase in May, building on April’s 14% surge. This consistent performance indicates a “sustained progression in investment activity in the economy,” as noted by Jasrai.
Further reinforcing this positive trend, government data revealed a significant boost in capital expenditure. The Centre’s capital expenditure in May soared by 39% year-on-year, reaching Rs 61,564 crore. For the April-May period, the **Indian government’s capex** witnessed an impressive 54% increase from last year, totaling Rs 2.21 lakh crore. Production of intermediate and infrastructure goods also showed healthy growth, rising by 3.5% and 6.3% respectively.
Mixed Signals: Capital Outperforms, Consumption Lags
Analyzing the broader picture, economists from **Barclays**, **Aastha Gudwani** and **Amruta Ghare**, observed that “capital-intensive sectors (metals, machinery, auto, construction) continue to outperform, while consumer durables and non-durables output remains subdued.” This stark contrast underscores a critical imbalance: strong investment is driving specific industrial segments, but broader private consumption is providing “limited impulses,” potentially holding back overall economic momentum.
The Core Sector’s Warning and Future Outlook
The slowdown was, to some extent, anticipated. Data from the **Commerce Ministry** released earlier on June 20 had already signaled trouble, showing that **core sector output**, which comprises 40% of the IIP and includes vital industries like **coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity**, grew by a meager 0.7% in May – its lowest in nine months. As a leading indicator of industrial activity, this foreshadowed the broader IIP performance.
Looking ahead, the path for industrial growth appears challenging. For the first two months of the 2025-26 fiscal year, IIP growth stands at 1.8%, significantly lower than the 5.7% recorded in April-May 2024. Daily power generation data for June already shows a 2.1% decline as of June 29, suggesting continued headwinds. **India Ratings & Research** predicts factory output growth to hover around 1.5% year-on-year in June 2025. The official IIP data for June is slated for release on July 28, offering further clarity on India’s industrial trajectory.
