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India’s industrial output growth dropped sharply to a nine-month low of 1.2% in May 2025, according to the latest data released by the Ministry of Statistics and Programme Implementation (MoSPI). The fall marks a significant deceleration from 2.7% in April 2025 and a stark contrast to the 5.9% growth recorded in May 2024.
This is the weakest industrial performance since September 2024, when the Index of Industrial Production (IIP) had grown by 3.1%. The IIP for May 2025 stood at 156.6, marginally higher than 154.7 in the same period last year, signalling a stagnation in industrial momentum.
Manufacturing, Mining and Electricity Falter
A closer look at the sector-wise indices reveals that manufacturing, the segment with the highest weight in the IIP, grew by 2.6% in May, down from 3.4% in April. The mining sector, however, recorded a marginal contraction of (-)0.1%, while electricity generation declined sharply by (-)5.8%, compared to a growth of 1.1% in the previous month.
The electricity slump is being attributed partly to weather-related anomalies. According to ICRA’s Chief Economist Aditi Nayar, "The early onset of the monsoon doused activity in mining and demand for electricity, with both these sub-sectors reporting a contraction, amidst an anaemic growth of manufacturing.”
Use-Based Classification: Capital Goods Drive Growth
The use-based classification data paints a mixed picture:
| Use-Based Category | Growth (May 2025 over May 2024) |
|---|---|
| Primary Goods | -1.9% |
| Capital Goods | +14.1% |
| Intermediate Goods | +3.5% |
| Infrastructure/Construction | +6.3% |
| Consumer Durables | -0.7% |
| Consumer Non-Durables | -2.4% |
The Capital Goods segment, often viewed as a bellwether for private sector investment, registered a robust 14.1% growth, albeit from a low base. Infrastructure and intermediate goods also supported the overall index, while consumer segments weakened, reflecting tepid demand and cautious consumption patterns.
MSME Outlook: Uneven Recovery Signals Caution
For India’s vast MSME sector, these numbers reflect a mixed bag of opportunities and challenges. While a surge in capital goods points to heightened investment activity—potentially beneficial for machinery and equipment manufacturers—weak demand in consumer durables and non-durables could strain small-scale producers and distributors.
The slowdown in industrial volume growth over April and May could weigh on Gross Value Added (GVA) in Q1FY26, impacting policy expectations and industrial credit cycles.
What It Means for MSMEs
Opportunity: MSMEs in capital goods and infrastructure-linked supply chains may benefit from strong order books.
Challenge: Consumer-focused enterprises, particularly in durables and FMCG, must brace for softer sales in the near term.
Risk: Prolonged monsoon impact and lagging electricity demand may suppress activity in mining and allied services.
The Road Ahead
Going forward, industrial growth will need support from policy stability, resilient supply chains, and consumer confidence revival. As the global macroeconomic environment remains uncertain, diversification and digital innovation could be crucial levers for MSMEs to weather volatility.
With the capital goods sector standing tall amid an otherwise modest industrial landscape, the question remains: Can this momentum be sustained to uplift the broader ecosystem in the quarters ahead? All eyes are now on how the monsoon season unfolds and how fiscal strategies align with evolving industrial dynamics. Industry