India’s factory output rises 5.2% in February on manufacturing strength

India’s factory output, measured by the Index of Industrial Production (IIP), grew by 5.2 percent in February, driven by a sharp improvement in the manufacturing sector, according to government data released by the National Statistical Office (NSO) under the Ministry of Statistics and Programme Implementation (MoSPI). The ministry’s data showed IIP growth for February 2025 at 2.7 percent, while January 2026 was revised upward to 5.1 percent from the earlier provisional estimate of 4.8 percent.

Dipti Deshpande, Principal Economist at Crisil Ltd, said, “The uptick in IIP growth was driven by stronger expansion in manufacturing (6 percent versus 5.3 percent), partially offset by electricity (2.3 percent versus 5.1 percent) and mining (3.1 percent versus 4.3 percent). A statistical low-base effect also supported the gauge. While headline IIP growth remained broadly steady at 4.1 percent in fiscal 2026 (April–February) compared with the year-ago period, manufacturing growth strengthened to 5 percent from 4.1 percent.”

Devendra Pant, Chief Economist at India Ratings and Research, commented, “IIP growth of 5.2 percent year-on-year (YoY) in February 2026 was aided by a low base, as IIP grew 2.7 percent in February 2025. Post-festive demand has remained relatively strong, with average growth of 6.4 percent during November 2025 to February 2026—the highest since August–November 2023. This points to robust demand; however, the Middle East crisis is expected to alter the situation. There have been reports of LPG shortages forcing certain industries to scale down production. India receives more than one-third of its remittances from the Gulf Cooperation Council; if the crisis prolongs, it could impact demand and, consequently, industrial production.”

Strong manufacturing
Double-digit growth in infrastructure and construction goods (10.2 percent versus 6.4 percent) led manufacturing IIP growth, supported by capital goods (7.5 percent versus 5.8 percent) and intermediate goods (5.8 percent versus 4.3 percent). The growth rates of the three sectors—mining, manufacturing, and electricity—for February 2026 stood at 3.1 percent, 6.0 percent, and 2.3 percent, respectively.

The quick estimate of the IIP stood at 159 in February 2026, compared with 151.1 in the corresponding month of the previous year. The IIP for the mining, manufacturing, and electricity sectors for February 2026 stood at 146.3, 157.3, and 198.4, respectively. Within the manufacturing sector, 14 out of 23 industry groups recorded positive growth in February 2026 over February 2025. The top three positive contributors for the month were manufacture of basic metals at 13.2 percent, manufacture of motor vehicles, trailers and semi-trailers at 14.9 percent, and manufacture of machinery and equipment at 10.2 percent.

Pant believes, “IIP growth in FY26 is mainly led by infrastructure/construction and capital goods, which are receiving a boost from investment activity in the economy. Investment demand is still largely government-dependent. The Middle East crisis, if it continues for a longer duration, has the potential to slow investment demand, which in turn is likely to impact IIP growth. IIP growth in March 2026 is likely to be affected by the base effect and the initial impact of the Middle East crisis, bringing India’s IIP growth down to 3.9 percent. We expect a status quo monetary policy in April 2026.”

Classification
The corresponding growth rates of the IIP, according to use-based classification, in February 2026 over February 2025 were 1.8 percent in primary goods, 12.5 percent in capital goods, 7.7 percent in intermediate goods, 11.2 percent in infrastructure/construction goods, 7.3 percent in consumer durables, and (-)0.6 percent in consumer non-durables. Based on the use-based classification, the top three positive contributors to IIP growth for February 2026 were infrastructure/construction goods, intermediate goods, and capital goods.

In the industry group ‘manufacture of basic metals’, item groups such as ‘MS slabs’, ‘flat products of alloy steel’, and ‘pipes and tubes of steel’ showed significant contributions to growth. In the industry group ‘manufacture of motor vehicles, trailers and semi-trailers’, item groups including ‘auto components/spares and accessories’, ‘commercial vehicles’, and ‘rim (wheel)’ made notable contributions to growth. In the industry group ‘manufacture of machinery and equipment’, item groups such as ‘agricultural tractors’, ‘stationary and internal combustion piston engines not for motor vehicles’, and ‘separators, including decanter centrifuges’, showed significant contributions to growth.

Challenges
The surge in energy prices poses a key challenge for manufacturers. Crude oil and natural gas prices exhibited a sharp divergence between February and March 2026. In February, crude oil prices remained relatively moderate, hovering around US$ 60–70 a barrel, supported by comfortable global supply, weak demand signals, and expectations of a surplus during the year. Natural gas prices also trended lower during the month, declining by nearly 10 percent amid subdued winter demand and adequate inventories. However, the situation changed dramatically toward the end of February with the outbreak of geopolitical tensions in the Middle East, particularly involving Iran.

By March, crude oil prices surged sharply, breaching US$ 100–120 a barrel, marking one of the steepest monthly gains in recent history, while natural gas prices also moved higher across Europe and Asia due to supply disruptions. The primary trigger was the escalation of conflict in the Gulf region, including threats to critical supply routes such as the Strait of Hormuz, which handles a significant share of global oil and liquefied natural gas (LNG) flows, along with attacks on energy infrastructure and shipping disruptions.

Far reaching impact
Looking ahead, the impact of these price increases is expected to be far-reaching and persistent. Elevated crude and gas prices are likely to sustain global inflationary pressures, increase input costs for industries, and widen trade deficits for energy-importing countries such as India. Financial markets have already reacted negatively, with sharp corrections in equities and currency depreciation linked to higher energy import bills.

Moreover, if supply disruptions persist or escalate further, the market could enter a prolonged phase of tight supply, high volatility, and structurally higher energy prices. Policymakers may be forced to adopt energy conservation measures, subsidies, or strategic reserve releases to stabilise domestic markets, while fuel-dependent industries—such as petrochemicals, steel, and transportation—could face margin pressures. Overall, unless geopolitical tensions ease meaningfully, the energy complex is likely to remain “higher for longer,” with significant macroeconomic consequences worldwide.

Downside risks
A combination of higher prices and tighter supply of critical inputs due to the ongoing conflict in West Asia has imposed downside risks on industrial output. With the availability of natural gas and liquefied natural gas (LNG) under pressure, the government has attempted to ration supplies to industries. However, sectors with heavy dependence on gas and its derivatives as key inputs could face disruptions in output. Meanwhile, a healthy domestic demand scenario provides a crucial buffer at present.

Over the past three fiscals, a favourable input cost environment and improving domestic demand allowed firms to steadily expand their margins by 18–19 percent. That trend is now reversing. Rising input costs are emerging as a key pressure point, and uneven pricing power across firms may limit their ability to fully pass on costs.

The Ministry of Finance’s Monthly Economic Review report notes that supply-side activity has slowed following the energy price and availability shock, while demand has remained resilient. The uncertainty arising from the continuing turmoil in West Asia is not only casting a shadow over India’s macroeconomic outlook but, if prolonged, could also delay business decisions and deter the recovery in private investment.