India's Industrial Engine Sputters: Growth Hits 9-Month Low Amidst Rain and Sluggish Demand

India's industrial production has hit a rough patch, with growth sliding to a nine-month low of 1.2% in May. This marks a significant dip from April's 2.7%, largely attributed to a surprising contraction in crucial sectors like electricity and mining, according to recent government data.

The numbers paint a concerning picture: electricity generation plummeted by 5.8% in May compared to the same period last year, while mining output saw a marginal but impactful decline of 0.1%. Even the manufacturing sector, the largest contributor to the Index of Industrial Production (IIP), experienced slower growth at 2.6% in May, down from 3% in April.

Experts point to a combination of factors. "Unseasonal rains and lower-than-normal temperatures negatively impacted electricity and mining production," explained Paras Jasrai, Associate Director at India Ratings and Research. This unseasonal weather appears to have dampened demand for power and mining activities, a sentiment echoed by Aditi Nayar, Chief Economist at ICRA. She noted that the "early onset of the monsoon doused activity in mining and the demand for electricity," leading to contractions in these vital sub-sectors amidst "anemic growth of manufacturing."

The factory output, as measured by the IIP, had shown a robust 6.3% growth in May 2024, highlighting the severity of the current slowdown. Furthermore, the April 2025 IIP growth figures were even revised downward slightly, from 2.7% to 2.6%. This marks the second consecutive month of contraction for mining output, signaling a persistent challenge.

Economists are raising red flags. Nayar warns that "tepid industrial volume growth in the first two months of the quarter doesn't augur well for industrial GVA growth in Q1 FY2026." The outlook for June remains subdued, according to Jasrai, who points to a 2.1% year-on-year drop in daily power generation as of June 29, mirroring the weak demand seen in May. This could keep factory output growth hovering around 1.5% for June.

The breadth of the slowdown is also concerning. The number of sectors experiencing positive growth shrank from 19 in January to just 13 in May. Out of 23 sub-sectors, only 11 managed to outperform the overall average growth.

However, there's a glimmer of hope. On the bright side, the capital goods sector showed impressive resilience, surging by 14.1% in May – its highest growth in 19 months. This strong performance signals a significant investment push from the government. Similarly, infrastructure goods output accelerated to 6.3% in May, recovering from a six-month low of 4.7% in April.

Government capital expenditure (from the Centre and 22 states) also saw a substantial increase, jumping by 58.8% year-on-year to ₹92,000 crore in May. This sustained momentum in government spending, as highlighted by Rajani Sinha, Chief Economist at CareEdge Ratings, "bodes well for the investment scenario in the economy."

Yet, the overall picture remains complex. Sinha notes that private capital expenditure remains subdued, with global economic uncertainties further dampening investment sentiments. Going forward, both demand and investment trends will be crucial indicators for India's industrial performance.