In a major boost to economic sentiments, the government on Tuesday said India's industrial output growth, measured by the Index of Industrial Production (IIP), accelerated to a 22-month high of 7.3% in June from a revised 5.1% in May.
The sharp uptick was driven by a pickup in manufacturing activity, robust capital goods production and higher electricity generation, according to data released by the Ministry of Statistics and Programme Implementation (MoSPI).
The manufacturing sector, which accounts for the bulk of the index, expanded 7.8% in June. Electricity and gas supply grew 10.6%, while water supply, sewerage and waste management services recorded a 6.1% increase. Double-digit growth was recorded in electrical equipment, motor vehicles, trailers and semi-trailers, textiles, food products and other non-metallic mineral products.
“From a use-based perspective, the strong growth of 14% in capital goods in Q1 FY27 could reflect steady investment activity in the economy despite an uncertain global economic backdrop,” said Rajani Sinha, Chief Economist at CareEdge Ratings.
Among use-based categories, capital goods output rose 14.2% in June, while intermediate goods expanded 9.3%. Infrastructure and construction goods registered a growth of 7.5%. Consumer durables and consumer non-durables grew 7.7% and 4.9%, respectively, indicating healthy consumer demand.
While industrial output remained resilient in June, economists cautioned that the ongoing conflict in West Asia and irregular rainfall could weigh on production in the coming months.
“Elevated input costs and price pass-throughs are expected to somewhat squeeze producer margins, temper consumption demand and, consequently, moderate industrial output growth. Erratic and sub-normal monsoons could further weigh on growth by curbing agricultural incomes and raising the cost of farm-based industrial inputs,” said Dipti Deshpande, Principal Economist at Crisil.
According to economists, renewed tensions in West Asia have heightened risks to both growth and inflation. Manufacturing and construction are particularly vulnerable to rising costs of critical imported inputs, especially energy. However, they noted that Indian companies have so far navigated supply disruptions arising from the conflict by sourcing materials from alternative markets and drawing on domestic inventories.