With the Industrial production (IP) growth for March disappointing at 3 per cent on slower growth in mining and subdued manufacturing growth, economists said that going forward, RBI rate cut, domestic policy is expected to support growth. Nomura said, “The global growth slowdown adds to existing growth drags, including weak private capex, household balance sheet stress, weak nominal income growth and the negative credit impulse. We maintain our view that GDP growth in FY26 will underwhelm at 5.8 per cent YoY (RBI: 6.5 per cent), down from an expected 6.2 per cent in FY25, and we expect 100bp of further rate cuts to a terminal repo rate of 5.00 per cent by end-2025.”
Elaborating on the broader growth dynamics, Nomura said, urban consumption has generally been weak, and even as rural consumption is recovering, rural terms of trade and growth indicators suggest an uneven pick-up. Trump’s reciprocal tariffs on India were initially imposed at 26 per cent (now at 10 per cent during the 90-day pause), which is much lower than the tariff on China, and India has a head start on other countries in terms of negotiating a trade deal with the US. Over the medium term, the brokerage firm said, this “tariff arbitrage” could favour India, if complemented by the right set of reforms.
A lower-than-expected March IP growth
India’s industrial production growth rose modestly to 3 per cent on-year in March, up from 2.7 per cent in February. This, Aastha Gudwani, India Chief Economist, Barclays, said, was materially lower than the brokerage firm’s forecast of 5 per cent and a shade lower than Bloomberg consensus’ estimate of 3.3 per cent YoY. Sequentially, the index rose by 9.1 per cent MoM nsa, slower than than the median increase of 10.7 per cent MoM nsa, typical of March. “Taking this print, IP growth in FY24-25 averaged 4 per cent vs 5.9 per cent in FY23-24. With an advancement of timing of data release from this month onwards (from 42 days to monthly cycle), there was a decline in response rate. We note that the response rate for March 2025 at 88 per cent, was lower than the response rates of previous months (94 per cent in February and January) — we suspect the March IP growth print may be revised upwards eventually,” she said.
The downside surprise, per economists, was driven by both manufacturing and mining. Following a sequential downturn in February, Barclays had expected that March data would show acceleration on the back of both fiscal-year end positive seasonality and the push to buildup of manufacturing inventory ahead of US tariff announcements.
Performance from across segments
Within manufacturing, 13 out of 23 sectors saw positive growth rates. The top-three positive contributors in March, Barclays stated, were manufacturing of basic metals posting a growth of 6.9 per cent YoY during the month, motor vehicles at 10.3 per cent and other non-metallic minerals at 8.5 per cent on-year. These are the same drivers that showed positive movement in February.
Meanwhile, mining IP growth slowed to 0.4 per cent YoY in March from 1.6 per cent YoY in February due to the high base effect. Electricity IP growth, on the other hand, improved to 6.3 per cent YoY in March from 3.6 per cent YoY in February.
On the use-based classification front, capital goods and consumer non durables shaved off 88bp from headline. Barclays said, “This was offset by modest improvements seen across the other four subcategories, led by infrastructure/construction goods. While capital goods sector growth slowed to 2.4 per cent YoY in March from 8.2 per cent in February, the decline in consumer non durables deepened to -4.7 per cent YoY in March from -2.1 per cent YoY in February. Growth in consumer durables IP accelerated (Mar: 6.6 per cent YoY, Feb: 3.7 per cent).”
Going forward…
Dharmakirti Joshi, Chief Economist, Crisil Limited, said, “The impact of tariff hikes, uncertainty on such changes and slowing global growth is likely to weigh on manufacturing activity in the coming months. Exports and investment demand are likely to be affected the most. However, domestic policy is likely to support growth as the income tax cuts come into force this fiscal and Reserve Bank of India continues with rate cuts. Another year of normal monsoon, and lower crude prices will also cushion the impact of external headwinds.”
