India’s Industrial Output and Energy Security in the Age of Trade Strains

Context

The Index of Industrial Production (IIP) registered a four-month high growth of 3.5% in July 2025, offering some relief amidst external headwinds, especially after the U.S. imposed 25% penalty tariffs on India over continued oil imports from Russia. This situation highlights the fragile balance between domestic economic resilience and external economic vulnerabilities.

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Key Highlights of the IIP Data

1. Overall Growth

   • IIP growth in July 2025: 3.5% (vs 5% in July 2024).

   • Broad-based growth driven by manufacturing and government capex.

2. Sectoral Growth

   • Capital Goods: +5% y/y

   • Intermediate Goods: +5.8% y/y

   • Infrastructure Goods: +11.9% y/y

3. Industry-specific Growth

   • Basic Metals: +12.7% y/y

   • Electrical Equipment: +15.9% y/y

   • Non-metallic Minerals (cement, etc.): +9.5% y/y

4. Rural Consumption Demand (Green Shoots)

   • Consumer Durables: +7.7% y/y

   • Consumer Non-durables: +0.5% y/y (positive after 9 months).

5. Inflation Trends

   • Retail inflation: 1.55% (aided by food disinflation of -0.8%).

   • Consumer non-durables were negative for most of the past 12 months due to food inflation, but show early recovery.

6. Weak Spots

   • Mining: -7.2% (contracted for 4th consecutive month due to coal mine flooding in Jharkhand, Odisha, Bengal, Chhattisgarh).

   • Electricity: +0.6% (much lower than +7.9% last year).

7. Tariff-Stressed Sectors

   • Textiles: -1.4%

   • Apparels: +3.2%

   • Leather: -3%

   • These are labour-intensive, MSME-heavy sectors and highly vulnerable to job losses.

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Analysis for UPSC Mains

1. Growth Resilience and Government-led Capex

• Positive growth in infrastructure goods, metals, and electrical equipment suggests government capital expenditure continues to be the main driver of industrial activity.

• However, dependence on government spending without parallel private investment may make growth unsustainable.

2. Rural Demand and Inflation

• Food price disinflation and easing retail inflation have revived consumption in both durables and non-durables.

• Since rural demand accounts for a significant share of total demand, this could provide a multiplier effect if inflation stays low.

3. Structural Vulnerabilities

• Mining disruptions due to climate-induced flooding reveal vulnerabilities in resource security.

• Electricity output slowdown impacts energy-intensive manufacturing sectors.

4. External Challenges

• U.S. tariff sanctions expose India’s dependence on global trade relations.

• MSME-driven export sectors (textiles, leather, apparels) face job loss risks, creating social and economic stress.

5. Policy Imperatives

• Provide liquidity support to MSMEs in export-heavy sectors.

• Promote domestic manufacturing resilience through PLI schemes and cluster-based industrial development.

• Strengthen energy security via diversification of sources (renewables, strategic reserves, nuclear).

• Invest in disaster-proof mining infrastructure to mitigate climate risks.

• Leverage low inflation window to boost consumption via rural employment schemes (e.g., MGNREGA, PM-Kisan support).

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Prelims Pointers

1. IIP Base Year: 2011-12.

2. Weightage in IIP: Manufacturing (77.6%), Mining (14.4%), Electricity (8%).

3. Recent Trend: July 2025 → +3.5% growth (highest in 4 months).

4. Key driver of current growth: Infrastructure goods (+11.9%).

5. Inflation data source: National Statistical Office (NSO) uses CPI (Combined) for retail inflation.

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PYQ Practice

Q1. (UPSC Prelims 2019) Consider the following statements about Index of Industrial Production (IIP):

1. It is released by the National Statistical Office.

2. It covers only mining, manufacturing, and electricity sectors.

3. The base year of IIP is 2011-12.
   Which of the above statements is/are correct?

• (a) 1 and 2 only

• (b) 2 and 3 only

• (c) 1 and 3 only

• (d) 1, 2 and 3

Answer: (d) All three.

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Q2. (Mains Practice, GS-III)
“Recent industrial growth trends show green shoots of rural demand but external trade sanctions and mining disruptions may derail the recovery.” Discuss with reference to the Index of Industrial Production (IIP) and India’s trade vulnerabilities.