India’s industrial activity is likely to remain under pressure in the coming months due to external volatility and domestic headwinds, prompting a need for policy support, according to a report by CareEdge Ratings.
Growth in India’s industrial output slowed to a five-month low of 4.1 per cent in March, showing a moderation in manufacturing and electricity output amid an uncertain global environment, the report said.
Manufacturing growth eased to 4.3 per cent in March from 5.9 per cent in February, as the sector continued to face headwinds linked to external demand conditions. Export-oriented segments such as textiles, wearing apparel and leather products contracted, signalling the impact of global weakness.
Electricity output growth also slowed sharply to 0.8 per cent from 2.3 per cent in the previous month, further weighing on overall industrial performance. However, mining output provided some support, accelerating to 5.5 per cent from 3.1 per cent in February.
“The global economic landscape remains challenging amid ongoing tensions in West Asia and uncertainty around conflict resolution,” CareEdge Ratings said in its report. “Lingering global risks and concerns around supply chain disruptions are expected to pose a headwind for India’s overall industrial activity.”
The agency warned that external volatility could continue to dampen industrial momentum, adding that policy support may be required to sustain growth.
Within manufacturing, 14 of 23 sub-sectors recorded expansion in March. Basic metals, which carry the highest weight in the index, grew by 8.6 per cent, though this marked a slowdown from double-digit growth seen in previous months.
From a demand perspective, signs of weakness were visible. Growth in consumer durables output slowed to 5.3 per cent in March from 7.1 per cent in February, while non-durables output remained subdued at 1.1 per cent.
CareEdge Ratings flagged emerging risks to both urban and rural consumption. Urban demand could be affected by rising inflation and subdued hiring in the information technology sector, while rural demand faces uncertainty due to the possibility of below-normal rainfall linked to an emerging El Niño.
“On the domestic front, urban consumption faces risks from an uptick in inflation and subdued IT sector hiring,” the report noted. “Furthermore, the risks of below-normal rainfall amid rising El Niño possibility pose a challenge for the rural demand scenario.”
For the full financial year 2025-26, industrial output growth stood at 4.1 per cent, largely unchanged from the previous year. Manufacturing growth improved to 5.0 per cent from 4.1 per cent in the prior year, but this was offset by weaker performance in mining and electricity.
Mining output growth slowed to 1.4 per cent in FY26 from 3.0 per cent in FY25, while electricity growth dropped to 1.0 per cent from 5.2 per cent, dragging on overall industrial expansion.
On the positive side, capital goods and infrastructure segments remained strong, growing by 8.3 per cent and 9.8 per cent respectively, supported by the government’s continued focus on capital expenditure-led growth.
Policy measures such as GST rate rationalisation, income tax reductions and policy rate cuts by the Reserve Bank of India also supported domestic consumption, although the impact was uneven across segments.
Despite these supportive measures, CareEdge Ratings cautioned that the combination of external risks and emerging domestic challenges would require close monitoring.
“The emerging domestic risks and external sector volatility remain a critical monitorable for India’s industrial activity,” it said. |
