Understanding the Index of Industrial Production (IIP)
- Definition: IIP measures the volume of production of different industry groups (manufacturing, mining, electricity).
- Base year: 2011–12.
- Weightage:
- Manufacturing: ~77%
- Mining: ~14%
- Electricity: ~8%
- Importance:
- Monthly indicator of industrial health.
- Proxy for economic activity and GDP (particularly industry sector).
- Guides policy interventions in demand, supply, and infrastructure.
Relevance : GS 3(Indian Economy)
Key Data: July 2025
- Overall industrial growth:
- 3.5% (July 2025) – four-month high.
- Lower than 5% (July 2024) → deceleration YoY.
- Sectoral performance:
- Manufacturing: +5.4% (six-month high), up from 4.7% in July 2024.
- Electricity: +0.6% (weak growth vs double-digit levels last year).
- Mining: -7.2% (fourth straight month of contraction).
- Use-based classification:
- Capital goods: +5% → investment revival.
- Consumer durables: +7.7% (seven-month high).
- Consumer non-durables: +0.5% (eight-month high, but very low absolute growth).
- Basic metals, fabricated metals, electrical machinery: strong double-digit growth.
- Non-metallic minerals: +9.5% → infra and construction push.
Why Growth Picked Up in July 2025
- Manufacturing rebound:
- Recovery after two months of contraction.
- Driven by investment demand (metals, machinery).
- Consumer durables revival shows festive/pre-festive demand pickup.
- Electricity slowdown:
- Monsoon impact → lower power demand from irrigation.
- High base effect (double-digit growth in 2024).
- Mining contraction:
- Seasonal monsoon disruption in coal, iron ore, limestone.
- Subdued global commodity demand, especially in China.
- Regulatory and environmental bottlenecks.
- Consumer goods mixed trend:
- Durables (+7.7%) → white goods, electronics, appliances supported by urban demand and credit growth.
- Non-durables (+0.5%) → rural demand still sluggish due to erratic monsoon, food inflation pressures.
Structural Takeaways
- Investment revival signals: Capital goods + basic/intermediate goods expansion → infra + capex cycle strengthening.
- Rural–urban divergence: Strong urban discretionary demand, weak rural essentials.
- Policy sensitivity: RBI likely to watch rural weakness + commodity volatility for growth–inflation trade-off.
- Mining as a drag: Persistent contraction risks supply-side constraints for core industries (steel, cement, power).
- Base effect reality: Lower growth vs July 2024 highlights statistical distortion – economy grew on a high base last year.
Implications
- For GDP growth (Q2 FY26):
- Industrial sector contribution may be moderate due to mining weakness + slower electricity.
- Manufacturing strength prevents sharp slowdown.
- For government policy:
- Need for rural demand stimulus (via MSP, rural jobs, credit).
- Mining reforms (ease clearances, monsoon-resilient infra).
- Support electricity diversification (RE integration, industrial demand).
- For markets & industry:
- Metals, machinery, and consumer durables show strong prospects.
- FMCG (non-durables) growth remains tepid, rural stress may weigh on stock performance.
