Why is it in the news?
1. The index of industrial production grew at its slowest rate in six months, clocking a pace of 2.9% in February, thereby decelerating growth across all sectors according to data from the Ministry of Statics and Programme implementation.
2.A combination of high base effects along with a slowing growth and manufacturing sectors led to the growth falling in the month of February 2025. Mining sector growth slowed to 1.6% in February as against 8.1% in the same month of the previous year. Manufacturing sector grew at a pace of 2.9% as against 4.9% in the previous year. Electricity production dipped to 3.6% in the month of February 2025 against 7.6% last year.
3. As per use based classification, capital goods output grew the fastest at 8.2% in the month of February 2025 against the 1.7% in the corresponding month in 2024. All other goods categories registered a slower output growth in February 2025 compared to the corresponding month last year. Intermediate goods output grew the slowest at 1.5%, consumer non durable at 2.1% against 3.2% the last year.
4. In February 2025, India's consumer durables sector experienced a year-on-year growth of 3.8%, marking a significant slowdown compared to the 12.6% growth recorded in February 2024.
The deceleration in consumer durables growth reflects challenges such as subdued urban demand and global economic uncertainties. However, the resilience in capital and infrastructure goods points to ongoing investment momentum, potentially offsetting some consumption weaknesses.
What is the index of industrial production? How is it calculated?
1. The index of industrial production is a monthly economic indicator published by the National Statistical Office to measure the short term changes in the volume of production of selected industrial sectors in India. It is a key measure to track industrial activity and is often used by policy makers, economists and analysts.
2. IIP includes three major sectors : These are manufacturing, having a weightage of 77.6%, mining 14.4% and electricity 8.0%.
3. IIP is also classified by use based sectors like primary goods, capital goods, intermediate goods, infrastructure/construction goods, consumer durables and consumer non-durables.
4. To calculate IIP, the base year is 2011-12. The formula for IIP is IIP=∑(Wi×Ri) / ∑Wi
Where:
Wi = Weight of i-th product.
Ri = Production index of i-th item = Current production / base year production * by 100.
IIP = ( 77.6 * 110) + (14.4 * 90) + (8.0 * 105)
77.6 + 14.4 + 8.0
= 8536 + 1296 + 840
100
= 10672/100 = 106.72
So the IIP would be an increase of 6.72% in industrial production compared to the base year. Thus, IIP is a crucial indicator of India’s industrial performance and provides valuable insights for policy formulation. However, being a volume index, it does not reflect price changes or productivity improvements.
Why has industrial production dipped recently in India?
1. The industrial production in India has experienced a severe slowdown in the month of february 2025 at 2.9% YoY basis falling short of the anticipated 4% growth. There were several factors for the poor growth of the industrial sector. These are :
weak domestic demand - Consumer demand in rural areas has been sluggish because of the stagnant wage growth and high borrowing cost. This led to the low spending on consumer goods leading to the lower production of consumer durables and non-durables.
Global economic headwinds - The slow down in the global demand has adversely affected India’s export of textiles, pharmaceuticals and electrical equipment. The declines in export, in turn , led to the contraction in the output of manufacturing goods.
Under performance of production linked schemes - India’s $23 billion production linked scheme aimed at boosting domestic manufacturing has underperformed. Only a fraction of the allocated funds has been disbursed. Thus, the scheme has failed to meet production targets.
Adverse weather conditions - Excessive rainfall in August 2024, disrupted mining activities, thereby, contributing a contraction in the mining sector and affecting overall industrial output.
High interest rates - The policy of the Reserve Bank to hike interest rates to combat inflation have increased borrowing cost, leading to reduced consumer spending and lower corporate investments.
How can the growth in industrial production be increased?
1. Boost domestic demand by lowering interest rates to encourage consumption and investment. That's why the RBI has reduced the Repo Rate from 6.25% to 6% to enhance consumption demand. Secondly, there is a need to enhance rural income through MGNREGA , MSP rationalisation , rural infrastructure and enhanced amounts under PM-Kisan. There is also a need to give tax incentives so that people may purchase durable as well as non durable goods.
2. Strengthening of manufacturing ecosystem should be resorted to by revamping PLI scheme, ease of doing business, ease compliance burden of MSMEs through digital single window system and adopting cluster based development sectors like textiles, electronics and pharmaceuticals.
3. Improving infrastructure by accelerating projects under PM Gati Shakti, providing continued power supply for industrial clusters and industrial corridor development.
4. Increasing export competitiveness by reducing logistic costs from 14% of GDP in India to 8% of GDP like in China, making headway by signing free trade agreements with different countries of the world for having wider access to the global market and incentivising high value exports over raw materials/ traditional items.
5. Innovating and skilling through expansion of skill India Mission with a focus on AI, Robotics, Electronics and Green tech, strengthening research and development through public and private partnership and establishing innovation clusters like IITs and IIITs.
6. Disposal of litigation through fast track courts and acquisition of land within the time limit.
Government Efforts
1. The Government made several provisions for the improvement in the industrial production in India in the Union Budget 2025-26. This includes the launching of a National Manufacturing mission with a focus on cluster based development, support for MSME and start up by providing loans up to 2 crores to 5 lakh first time entrepreneurs for women SC and ST categories.
The budget further revised the classification norms for MSMEs for better access to beneficiaries. The budget also allocated 1.5 lakh crore interest free 50 year loans to interest for capital expenditure. It also provided for the expansion of PM Gati Shakti for better logistics and industrial connectivity. It further created a 25 thousand crore maritime development fund to support ship building.
It also increased allocation for research and development and innovation hub under start up and digital India. It also pushed for adoption of industries 4.0 technologies like Ai, IOT and automation in industrial processes.
2.The budget further rationalised custom duties on critical raw materials to reduce input costs.
Conclusion
The Union Budget 2025-26 reflects a strategic push towards strengthening India’s industrial base through support to MSMEs, infrastructure expansion and sector specific initiatives.
To boost industrial production in India, a multi pronged strategy is essential. While there is a need to improve infrastructure, simplify regulation, enhance skill development, support MSMEs and promote technology adoption, there is further need to have coordinated efforts from the government, industry and financial institutions so that India can unlock its manufacturing potential and emerge as a competitive global industrial hub.
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