India’s industrial engine registered a sharp slowdown in October 2025, with the Index of Industrial Production (IIP) growing a meager 0.4%, marking a 14-month low that signals a significant pause in economic activity.
The figure fell dramatically short of the 4.0% growth recorded in September and the 3.1% growth expected by economists in a Reuters poll, dampening the optimism fueled by recent headline GDP numbers.
The Ministry of Statistics & Programme Implementation attributed the weak performance largely to the calendar effect, noting a smaller number of working days in October due to major national festivals, including Dussehra and Deepawali. The 0.4% increase represents the lowest growth rate since August 2024.
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Sectoral Deceleration and Contraction
The three primary sectors that constitute industrial output exhibited a mixed, yet overwhelmingly negative, performance:
Manufacturing Sector: Growth in the largest component of the index slowed sharply, rising just 1.8% in October compared with a healthy 4.8% in September, indicating a loss of momentum as pre-festive inventory building concluded.
Mining Activity: The sector contracted, deteriorating by 1.8%.
Electricity Production: The most significant decline was seen in the utility sector, which plunged by 6.9%.
The growth rates of the three sectors for the month of October 2025 are thus Mining (-1.8%), Manufacturing (1.8%), and Electricity (-6.9%).
The Paradox of GDP and Forward Outlook
The sharp industrial slowdown in October creates a divergence with the strong macroeconomic performance reported just prior. The Ministry of Statistics and Programme Implementation data showed that India’s economy grew faster than expected in the quarter ending in September (Q2 FY26), at a robust 8.2%, up from 7.8% in the previous quarter (Q1 FY26).
October was a crucial month for the economy, as New Delhi had rolled out Goods and Services Tax (GST) reductions, effective September 22, specifically to spur domestic consumption and soften the blow from the 50% U.S. tariff on Indian goods. The IIP data tracks short-term changes in output across a basket of industrial products, where eight core industries, including steel, cement, electricity, and fertilizer, account for 40% of the index’s weight.
Despite the tariffs and the low October output, economists suggest the underlying domestic economy remains robust. Dipti Deshpande, principal economist at S&P Global-owned Crisil, stated that “sturdy consumption demand” will partially offset the negative impact of weaker export demand between October and December, providing a beneficial cushion for the manufacturing sector.
She added that robust rural incomes, low inflation, reduced interest rates, and tax relief “should keep consumption healthy.”
However, she cautioned that the government is “likely to moderate its capex in H2 [October-March] to meet fiscal deficit target amid subdued tax collections,” a potential drag on the infrastructure and capital goods segment moving forward.
Analysis: Impact of the 50% U.S. Tariff
The 50% U.S. tariff, which escalated from a 25% duty in early August, has caused immediate and profound damage to India’s export sector. The tariff impacts over half of India’s exports to its largest trading partner, the United States, placing approximately $48.2 billion worth of goods (based on 2024 export values) at risk.
The steepest damage was concentrated in sectors where India holds a competitive edge and which are crucial for domestic employment. These labor-intensive sectors—including textiles and apparel, gems and jewelry, leather and footwear, solar panels, and chemicals—faced the full 50% duty, which has been cited as a punitive measure linked to India’s continued purchase of Russian energy.
Exports in this critical group plummeted by 31.2% between May and October 2025, according to the Global Trade Research Initiative (GTRI). This tariff regime renders Indian goods among the most heavily taxed in the U.S. market, creating a severe cost disadvantage against rivals like Vietnam and Bangladesh.
The resulting weaker export demand is directly reflected in the IIP data, where manufacturing output grew only 1.8% in October, a significant deceleration from 4.8% in September. This is despite the pre-festival inventory building that typically precedes the holiday season (Dussehra and Deepawali, which ironically contributed to fewer working days and the overall low 0.4% IIP number). The tariffs have triggered volatility and a broad market correction in export-linked sectors, leading to a decline in engineering goods exports by 16.71% year-on-year in October.
Recognizing that it could not immediately reverse the U.S. tariffs through negotiation, New Delhi deployed the GST cut as a tool to substitute external demand with sturdy domestic consumption, creating an internal “shock absorber” for the economy.