India’s Index of Industrial Production (IIP) growth is expected to have moderated sharply to 2% year-on-year in March 2026, down from 5.2% in February and 3.9% in March 2025, as broad-based weakness in manufacturing and energy sectors weighed on output amid rising input costs and supply disruptions, according to a research report by Union Bank of India.

The report said that, the slowdown reflects the impact of higher input costs on production margins and demand, even as some high-frequency indicators showed mixed resilience.

The core sector, which contributes nearly 40% to IIP, contracted by 0.4% in March, marking its lowest level in 19 months compared to a revised 2.8% growth in February and 4.5% expansion in March 2025. Natural gas, refinery products, steel and cement recorded positive year-on-year growth, but coal, crude oil, fertilisers and electricity declined. On a month-on-month basis, only fertiliser production fell sharply, by 25.9%.

High-frequency indicators painted a mixed picture. E-way bill generation continued to show double-digit growth at 12.9% in March, though slower than 18.8% in February, supported by GST rate rationalisation and strong goods movement. GST revenue also rose to 8.8% from 8.1% in February, reflecting sustained consumption and improved compliance.

Fuel consumption trends were mixed. Petrol and diesel usage rose to 7.6% and 8.0% respectively, partly driven by precautionary buying amid fears of supply disruptions due to the West Asia conflict. However, overall petroleum consumption moderated to 2.2% from 5.5% in February, weighed down by a sharp fall in aviation turbine fuel demand following widespread flight suspensions. Electricity demand remained moderate as above-normal rainfall in the first 25 days of March reduced cooling requirements. Toll collections continued to decline.

The manufacturing Purchasing Managers’ Index (PMI) fell to 53.9 in March, its lowest since June 2022, from 56.9 in February, as new orders and output growth slowed. Services PMI also moderated to 57.5 from 58.1.

Automobile production remained relatively resilient. Two-wheeler output grew 22% YoY in February, while tractor production rose 28.6%, though sharply lower than the 80% surge in February. Passenger vehicle production grew 9%, compared with 9.8% a month earlier. Retail sales data for March showed steady rural demand, with two-wheeler sales up 28.7% and tractor sales at 10.9%. Retail automobile sales remained robust at 25.3%, though passenger vehicle sales slowed to 21.5%.

Under the use-based classification, consumer IIP is expected to have moderated compared to previous months. In contrast, intermediate and infrastructure/construction goods likely saw healthy growth, supported by sustained government capital expenditure. Steel and cement production, while moderating year-on-year, continued to display steady growth, with month-on-month increases of 9.3% and 4.7% respectively in March.

Merchandise trade data offered some relief, with the trade deficit narrowing to $20.67 billion in March from $27.10 billion in February. Both exports and imports contracted, falling 7.4% and 6.5% respectively.

Union Bank noted that industrial production in March was likely dragged down by weakness in energy-related sectors and supply-side disruptions in manufacturing. However, sustained government capex remains a positive for infrastructure and capital goods demand.

On the downside, persistently high crude prices, potential gas shortages, sluggish export demand and weak global manufacturing conditions could raise input costs and dampen activity. On the upside, faster execution of infrastructure projects, continued strength in capital goods demand and any policy stimulus measures could help offset external headwinds and support industrial momentum.

Published on April 26, 2026