IIP Growth Hits 26-Month High as Consumer Demand Lifts Industrial Momentum

The Index of Industrial Production (IIP) rose to a 26-month high of 7.8% on-year in December on the back of healthy consumer demand, marking the second month of gains after the 7.2% notched up in November, data released by the National Statistics Office showed. 

The sharp pick-up underscores strengthening industrial momentum as activity broadened across sectors, supported by resilient domestic demand conditions.

Growth in December was broad-based, with manufacturing expanding 8.1%, mining rising 6.8% and electricity generation increasing 6.3% from a year earlier. Manufacturing, which carries the largest weight in the index, remained the key driver, with 16 of 23 industry groups recording positive growth.

Among manufacturing sub-sectors, computer, electronic and optical products clocked a surge of 34.9%, while motor vehicles, trailers and semi-trailers grew 33.5%, reflecting strong demand for automobiles and allied components. Other transport equipment expanded 25.1%, while basic metals and pharmaceuticals also posted double-digit growth, signalling firm momentum in core and consumption-linked industries.

Use-based data pointed to a demand-led recovery. Consumer durables output rose 12.3% in December, while consumer non-durables grew 8.3%, highlighting sustained household spending. Infrastructure and construction goods recorded a robust 12.1% expansion, suggesting continued traction in public and private capital expenditure. Capital goods output increased 8.1%, indicating a gradual improvement in investment activity, even as it remained uneven.

Economists, however, cautioned that the external environment continues to pose challenges.

Dipti Deshpande, Principal Economist at Crisil Ltd, said the benefits of GST rationalisation were clearly visible in domestic consumption, but export-oriented sectors were facing pressure due to higher tariffs imposed by the US.

“While domestic tailwinds should support demand in consumer segments for a few more quarters, the adverse impact of higher US tariffs on export segments could get more pronounced,” she noted.

Deshpande added that a potential trade deal with the US, which reduces tariffs closer to levels faced by peer economies, could provide meaningful relief to export-linked industries. Until then, the divergence between domestic-focused and export-oriented segments is likely to persist.

December’s IIP data reinforce the view that India’s industrial recovery remains intact, driven primarily by domestic demand, even as global trade uncertainties cloud the outlook for export-heavy sectors.