India's Industrial Output Slowdown Expected to be Offset by GST Reforms and Festive Demand

A report by Bank of Baroda highlights a slowdown in India's industrial output growth to 3% in the first half of the financial year 2025-26 (H1FY26), down from 4.1% in the same period last year (H1FY25). This deceleration was primarily driven by subdued growth in the mining and electricity sectors. However, the manufacturing sector demonstrated resilience, with output growing by 4.1% in H1FY26 compared to 3.8% in H1FY25. Data for September 2025 showed a recovery, with industrial production measured by the Index of Industrial Production (IIP) edging up to 4% from 3.2% in September 2024. Key manufacturing sub-sectors like computers, basic metals, and electronics, along with infrastructure and consumer durable sectors, showed strong growth in September.

The report anticipates that the ongoing Goods and Services Tax (GST) rationalisation, an earlier-than-usual festive season, and lower inflation levels will significantly boost production and consumption in the latter half of the financial year (H2FY26). These factors are expected to provide short-term support to industrial and economic activity, helping to offset global economic uncertainties and maintaining growth momentum. The ongoing reforms and positive indicators suggest resilience in the Indian economy.

Impact This news is significant for Indian investors as it points to underlying strength and recovery drivers in the domestic economy. The anticipated boost in production and consumption could positively influence corporate earnings and investor sentiment, particularly for companies in the manufacturing and consumer goods sectors. Rating: 8/10.

Difficult Terms Goods and Services Tax (GST) rationalisation: Adjustments or simplifications made to the GST tax structure to improve its efficiency and fairness. Festive season: A period associated with cultural festivals, typically leading to increased consumer spending. Inflation: A general rise in prices and a decrease in the purchasing value of money. Financial Year (FY): A 12-month period used for financial accounting, usually from April 1 to March 31 in India. H1FY26: The first half of India's financial year 2025-26, covering April 2025 to September 2025. H2FY26: The second half of India's financial year 2025-26, covering October 2025 to March 2026. Industrial output: The total volume of goods produced by the industrial sector of an economy. Index of Industrial Production (IIP): A monthly index tracking changes in the production volume of industrial sectors. Manufacturing: The process of making goods by using labor and machinery, often on a large scale. Mining: The extraction of valuable minerals and other geological materials from the Earth. Electricity sector: The industry involved in generating, transmitting, and distributing electrical power. Consumption: The use of goods and services by households and governments. Resilience: The ability of an economy to withstand or recover quickly from economic shocks or downturns.