India’s industrial production growth slowed to a six-month low in February to 2.9%, down from January’s 5.2% (revised estimates) and almost halved from last February’s 5.6%. This decline was broad-based, except for a marginal rise in power production of 3.6%, up from January’s 3.4%, but less than half of last February’s 7.6%. While mining witnessed the steepest decline to 1.6% this February, from 8.1% last year, manufacturing almost halved to 2.9%, from 4.9% last year. From a use-based classification, the steep decline in consumer durables output to 3.8%, from 12.6% last February as well as a production contraction for the third month in a row, of consumer non-durables by 2.1% (there was a 3.2% contraction in January), indicates a marked decline in overall consumption demand. This has been despite a sharp dip in retail inflation, which was down to 3.61% this February from 5.09% a year ago, with a low food inflation rate at 3.75%, the lowest in two years. This makes it almost certain that the government’s wish for a Maha Kumbh-led spike in consumption has not materialised, leading to the likelihood of the Centre’s 6.5% GDP growth target for the 2025 fiscal being missed. February’s Index of Industrial Production (IIP) numbers co-relate with the 14-month low in the manufacturing Purchasing Manager’s Index survey conducted by S&P at 56.3.

This highlights two things: the trepidation of manufacturers facing unprecedented global economic uncertainty following U.S. President Donald Trump’s actions and the lack of an appetite among consumers, many of whom have witnessed the value of their assets plummet due to Indian stock market volatility that has mirrored the peaks and troughs in global exchanges. There have been green shoots, however. Within the manufacturing sector, which has the highest weightage of about 77% in the IIP, 14 of 23 industry groups recorded growth this February from a year ago. Growth was led by motor vehicles, trailers and semi-trailers (8.9%), non-metallic mineral products (8%) and basic metals (5.8%). Capital goods output accelerated to 8.2% from 1.7% last year, indicating robust investment demand aided by a massive rise in government spending. This was despite the liquidity squeeze in India’s banking system by ₹1.7 trillion, as on February 20, due to the massive flight of foreign capital in search of haven asset classes and to hedge against a depreciating rupee. The central bank stepped in by injecting about ₹2.18 trillion into the banking system using rupee/dollar swap arrangements that ended on March 24. The Centre can perhaps take solace in the fact that despite a possibility of its growth target for the last fiscal being missed, India remains the fastest growing economy.