Production in India shows signs of improvement in the last fiscal, and current fiscal policy may witness pressure: Bank of Varoda

According to a report by Baroda Bank, production in the country showed signs of improvement at the end of the last fiscal year, according to a report by Baroda Bank, supported by high-frequency indicators such as manufacturing PMI, GST collections and E-Way Bill Generations.

However, the report also mentioned that some pressure may be encountered in the first quarter of the fiscal year, especially as export growth remains a key risk due to uncertain global trade terms.

It said: “In light of the latest improvements in the manufacturing PMI on March 24, and the pick-up service from the E-Way Bill Generations and GST collection, we expect production to report some improvements at the end of the previous fiscal year. Some headwinds have occurred in the first quarter of the current fiscal year.”
The report stressed that the Reserve Bank of India’s move to lower policy interest rates is expected to reduce credit costs, thereby reducing the manufacturing sector. This development is expected to encourage production and investment.

In addition, the 90-day pause in the implementation of specific national tariffs and the softening of global commodity prices are also seen as positive factors in the industry’s near-term prospects.

Despite these positive effects, the latest data on industrial output plots a mixed picture. The growth rate of the Indian Industrial Production Index (IIP) fell to 2.9% in February 2025, down from 5.6% in February 2024 and 5.2% in January 2025. Compared with the same period last year, the output has dropped significantly. It is worth noting that the mining and power sectors have witnessed the biggest slowdown, while the manufacturing sector has seen a higher decline. In the manufacturing sector, many key industries reported lower production in February 2025, compared with the previous year. These include basic metals, clothing, chemicals and motor vehicles. On the other hand, output in certain sub-industry (such as pharmaceuticals, textiles and computer/electronics) has improved.

Under the use-based classification, only capital goods showed year-on-year growth in February 2025. Production of original products, intermediate goods, infrastructure goods and consumer durable goods has declined. Consumers’ production of sulfur that is not prone to is also reduced, although the rate of falls is slower than in February 2024.

Overall, the IIP growth rate so far (FYTD) has dropped to 4.1%, compared to 6% in the same period last year. Although production is likely to be helped by favorable domestic indicators by the end of FY25, the outlook for Q1 1 remains mixed.

Lower borrowing costs and temporary pauses in trade tariffs provide some buffering, but volatility in the market and ongoing U.S.-China trade tensions continue to pose risks to India’s manufacturing growth.