What Happened
- India's Index of Industrial Production (IIP) grew 4.8% year-on-year in January 2026, slowing from the two-year high of 8% (revised) recorded in December 2025.
- The slowdown was sharper than analyst expectations of approximately 6.5% growth, and below the 5.2% recorded in January 2025.
- Manufacturing, which accounts for nearly 78% of IIP weight, grew 4.8%, supported by motor vehicles (10.9%), basic metals (13.2%), and machinery and equipment (6.2%).
- Under use-based classification, infrastructure and construction goods recorded the highest growth at 13.7%, while consumer non-durables contracted by 2.7%.
- Mining grew 4.3% and electricity generation grew 5.1% in January 2026.
Static Topic Bridges
Index of Industrial Production (IIP) — What It Measures
The Index of Industrial Production (IIP) is India's primary monthly indicator for tracking the performance of the industrial sector. It is compiled and published by the National Statistics Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI), six weeks after the reference month ends. The index is calculated as a weighted arithmetic mean using Laspeyre's formula, with the current base year being 2022-23 (revised from the earlier 2011-12 base).
- IIP covers three broad sectors: Mining (14.4% weight), Manufacturing (77.6% weight), and Electricity (8.0% weight).
- Use-based classification groups industries into: Primary goods, Capital goods, Intermediate goods, Infrastructure/construction goods, Consumer durables, and Consumer non-durables.
- The Eight Core Industries (coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, electricity) have a combined weight of 40.27% in the IIP.
- Data is released with a six-week lag and subjected to revision in subsequent months; the final revised figures are published 15 months after the reference month.
Connection to this news: The January 2026 IIP data, released on March 2, shows industrial output maintaining positive momentum but at a moderating pace — the use-based breakdown (infrastructure goods surging, consumer non-durables contracting) reveals uneven sectoral dynamics important for policy assessment.
Capital Goods vs. Consumer Goods — Reading IIP Signals
Within IIP's use-based classification, capital goods (machinery, equipment, tools used for production) are a proxy for investment demand in the economy. Strong capital goods growth indicates corporate capex activity, while consumer durables (refrigerators, washing machines, vehicles) reflect household income and demand. Consumer non-durables (food, toiletries, low-value consumables) track mass consumption at the lower end of the income pyramid.
- Capital goods grew 4.3% in January 2026, indicating continued but moderating investment activity.
- Consumer durables grew 6.3%, reflecting urban household consumption demand.
- Consumer non-durables contracted 2.7%, signalling stress in rural or lower-income consumption.
- Infrastructure and construction goods grew 13.7%, consistent with the government's sustained capital expenditure push in roads, railways, and urban infrastructure.
Connection to this news: The divergence between strong infrastructure goods and contracting consumer non-durables in January 2026 is a recurring pattern in India's industrial data — government-led investment driving industrial output even as rural mass consumption shows weakness.
Core Sector Industries — Leading Indicators
India's eight core sector industries (coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, electricity) together account for 40.27% of the weight in the IIP. The core sector index is released earlier (last day of the following month) than the full IIP, making it a useful leading indicator. Strong core sector performance typically provides a floor to overall IIP growth.
- Steel and cement are key indicators of construction and infrastructure activity.
- Refinery products and natural gas reflect energy sector health, which feeds into manufacturing costs.
- Fertiliser production tracks agricultural input availability, with implications for farm incomes and rural demand.
- Core sector data for January 2026 showed cement and steel output as primary supports for the strong infrastructure goods reading in IIP.
Connection to this news: The 13.7% growth in infrastructure/construction goods within January's IIP aligns with sustained core sector output in cement and steel, driven by the government's continued infrastructure spending in the Union Budget.
Industrial Policy and Make in India
India's manufacturing policy ambition — anchored in Make in India, Production Linked Incentive (PLI) schemes, and the National Manufacturing Policy — targets raising manufacturing's share of GDP from approximately 16% to 25% by 2025. The IIP is one of the primary short-term metrics against which progress toward this goal is measured, alongside GST collections, PMI data, and corporate earnings.
- PLI schemes have been extended to 14 sectors including electronics, pharmaceuticals, textiles, automobiles, and specialty chemicals with a total outlay of approximately ₹1.97 lakh crore.
- Manufacturing's contribution to GDP has broadly stagnated around 13-16% over the past decade, prompting policy interventions.
- Motor vehicles recording 10.9% growth in January 2026 reflects both domestic demand recovery and PLI-backed export momentum in the auto sector.
- Machinery and equipment at 6.2% growth aligns with capex cycles in engineering and industrial goods.
Connection to this news: January's IIP data is read against the backdrop of India's industrial policy ambitions. The 4.8% growth, while below December's 8%, maintains the broad direction of the manufacturing sector, though the softness in consumer non-durables and the gap between government capex-driven sectors and mass consumption goods remains a structural concern.
Key Facts & Data
- IIP growth: 4.8% YoY in January 2026 (vs. 8% revised in December 2025, 5.2% in January 2025).
- Manufacturing (77.6% of IIP weight) grew 4.8%.
- Infrastructure and construction goods: highest growth at 13.7%.
- Consumer non-durables: contracted by 2.7%.
- Consumer durables: grew 6.3%.
- Capital goods: grew 4.3%.
- Intermediate goods: grew 6.0%.
- Primary goods: grew 3.1%.
- Mining grew 4.3%; electricity grew 5.1%.
- Motor vehicles sub-sector: 10.9% growth; basic metals: 13.2%; machinery and equipment: 6.2%.
- IIP base year: 2022-23 (current); compiled by NSO under MoSPI.
- Eight core industries: 40.27% weight in IIP.