India's industrial sector demonstrated remarkable resilience and growth momentum in December 2024, with official data released on Wednesday revealing a robust 7.8% expansion in industrial production. This represents the fastest growth rate witnessed in two years, significantly outpacing the 3.7% growth recorded in the same month a year earlier. The strong performance follows an upwardly revised growth of 7.2% in November 2024, largely attributed to festive season demand and the beneficial impact of Goods and Services Tax (GST) rate reductions.
Sectoral Performance Highlights
Manufacturing Leads the Charge
The manufacturing sector, a critical component of India's industrial landscape, expanded by 8.1% in December. This marks the second fastest expansion in the current fiscal year, showcasing sustained momentum. For comparison, manufacturing output had grown at an upwardly revised rate of 8.5% in November and registered a modest 3.7% growth in December 2023.
Mining and Electricity Show Strong Gains
Mining output exhibited a substantial increase of 6.8% in December, a significant improvement from the 2.7% expansion observed a year ago. This follows an upwardly revised growth of 5.8% in November. Meanwhile, electricity generation rebounded impressively with a 6.3% growth in December, nearly matching the 6.2% growth seen in the year-ago period. This recovery is notable given that power generation had contracted by 1.5% in November.
Key Industrial Segments Analysis
Capital and Infrastructure Goods
Capital goods output expanded by 8.1% in December, although this was slightly lower than the 10.5% expansion recorded in the same period last year. Infrastructure goods output, however, showed a robust 12.1% growth in December, up from 8.4% a year ago. While this indicates a slight moderation from the 13% growth seen in November, the central government's capital expenditure initiatives are widely recognized as providing a significant push to demand for infrastructure goods.
Consumer Goods Show Mixed Trends
The output of consumer durables, including products like air-conditioners, television sets, and automobiles, grew by 12.3% in December. This represents an improvement over the 8.1% growth seen a year ago and the 11.2% expansion recorded in November. The GST rate cuts implemented in September 2024 are playing a crucial role in bolstering growth in this segment. On the other hand, consumer non-durables recovered with an 8.3% growth in December, a positive shift after experiencing contraction in the same period last year and remaining in negative territory for seven out of nine months in the current fiscal year.
Broader Economic Context and Outlook
For the April to December period of the 2024-25 fiscal year, industrial production grew by 3.9%, slightly lower than the 4.1% growth observed in the corresponding period a year ago. The government, earlier this month, projected that India's gross domestic product (GDP) will expand by 7.4% in 2025-26. This forecast is supported by an anticipated strong 7.4% growth in manufacturing and a 9.1% expansion in the services sector.
However, experts have pointed out potential challenges. Capacity utilization in factories remains around 75%, which may not be sufficient to trigger fresh private investments. Additionally, the surplus production capacity in China, exacerbated by U.S. tariffs, is seen as a drag on new private capital investments. The Reserve Bank of India (RBI) noted last month that the seasonally adjusted capacity utilization of the manufacturing sector stood at 74.8% in the September quarter, which is well above the long-term average but still below levels that typically spur significant new investment.
