IIP growth picks up to 3.0% in March

On-year growth in the Index of Industrial Production (IIP) inched up to 3.0% in March from 2.7% in the previous month (revised downwards from 2.9%), driven by an acceleration in output growth in manufacturing and electricity.

A likely catch-up in government capital expenditure (capex) towards the end of last fiscal supported IIP growth in March. The month also saw the impact of front-loading international shipments ahead of United States (US) reciprocal tariffs, reflected in accelerating IIP growth in several export sectors.

On average, though, IIP growth stood at 3.6% on-year in the fourth quarter of last fiscal, below 4.1% in the previous quarter, due to sluggish performance of consumer-oriented sectors. However, IIP data for consumer goods contradicts the Reserve Bank of India’s (RBI’s) consumer confidence survey, which showed a pick-up in consumer confidence in the March quarter compared with the previous one. On the other hand, output growth in infrastructure and construction goods accelerated, suggesting healthy government capex growth in the quarter. The IIP data raises concerns about manufacturing gross domestic product (GDP) growth in the quarter.

This fiscal, US tariff hikes pose a key downside risk to the industrial outlook. Slower global growth, along with anticipated reciprocal tariffs on India after three months, is likely to hit exports. Uncertainty about tariff duration and frequent tariff changes may hinder investments. A nuances of these developments will be shaped by the kind of trade deal India manages to strike with US.