Editorial 2: Demand distress
Context
"Rural demand may still increase during the festive season."
Introduction
The new financial year has begun on a disappointing note, with industrial production slowing significantly. Key indicators like the Index of Industrial Production (IIP), manufacturing data, and consumer goods output suggest weak demand across sectors. A closer look reveals contraction in both essential and discretionary items, reflecting consumer caution and broader economic sluggishness, despite optimistic government projections.
Industrial Growth Slows Down in FY 2025–26
- Index of Industrial Production (IIP) growth hit a 9-month low of 1.2% in May 2025
- April 2025 was also weak, with 2.6% growth (8-month low)
- Average growth for April–May 2025-26: only 1.9%, down from 5.7% in 2024–25
- Indicates a poor start to the new financial year
Electricity Sector — Major Drag
- Contracted by 5.8% in May 2025 (worst since June 2020)
- Likely reasons:
- Cooler-than-usual May reduced demand
- Possibly lower industrial offtake, indicating slowing production
Manufacturing Sector Slows Sharply
- Growth down to 2.6% in May 2025, from 5.1% in May 2024
- Broad-based slowdown, with many sectors contracting
Sectors showing contraction:
- Textiles
- Leather products
- Chemicals
- Pharmaceuticals
- Electronics
- Furniture
- Most of these are consumer-facing sectors, indicating weak demand.
Consumer Goods Signal Demand Weakness
Simultaneous contraction (first time since Nov 2023):
- Consumer Durables
- Consumer Non-Durables
This is a strong signal of falling consumer demand.
Sub-Sector Breakdown of Consumer Products
|
Category
|
Contracting Items
|
|
Consumer Durables
|
Footwear, books, plastic furniture, shaving razors, SS utensils, computers, phones, ACs
|
|
Consumer Non-Durables
|
Meat, honey, fruit juice, jams, sugar, bottled water
|
Most of these are non-essential/discretionary, indicating people are postponing spending
Other Economic Indicators
- Private Manufacturing PMI (June 2025):
- Intermediate goods demand is strong
- But capital and consumer goods demand remains weak
- Finance Minister’s View:
- Confident that urban demand will recover
- Budget 2025 tax breaks may help during festive season
- Rural demand may improve due to monsoon progress
Weak Start to FY 2025–26
- Urban demand remains uncertain
- Exports/trade still subdued
- Domestic demand is not picking up
- Together, this does not bode well for economic momentum in FY 2025–26
Conclusion
The dip in industrial output and widespread contraction in demand point to deeper economic stress. While the government expects urban and rural demand to revive in coming months, current data suggest weak consumer confidence and restrained spending. With global trade still sluggish, domestic demand must recover soon to ensure the economy regains momentum in the remainder of FY 2025–26.