The June 2026 data for the Index of Industrial Production has come as a pleasant surprise. The 23-month high growth rate of 7.3% of the overall index was unexpected given the significant economic headwinds from the West Asia crisis and a deficient monsoon. Some of the growth was due to a low base, since the performance last June was the worst in nearly a year, but the numbers nevertheless indicate resilience. The manufacturing sector accelerated due to a dual push from the domestic and the external sectors. Consumer durables growth remained above 7% for the second consecutive month, and the non-durables sector saw growth quicken to a six-month high. At the same time, data from the Commerce Ministry showed that merchandise exports grew 15.5% in June, revealing demand from abroad. The capital goods sector also saw double-digit growth. The sector has grown in double digits in eight out of the last 10 months. This bodes well for the economy, but also reveals some risks. Capital creation, primarily by the government, has been the single consistent engine of growth in the post-pandemic years. It needs to keep firing. There are too many uncertainties and headwinds for other engines such as exports and domestic consumption to consistently take up the load. Other areas of growth are also far too seasonal. The electricity sector grew at a 25-month high in June, largely in response to a heat wave in several parts of the country. The mining sector, too, snapped a four-month streak of contraction and grew in June. Yet, this will likely be temporary since the progressing monsoon will disrupt mining activities.
Economists have also warned that the monsoon’s deficiency will inevitably hit rural demand in the months ahead, which will see the consumer-facing sectors slumping again. Hopes of a ceasefire in West Asia are also evaporating. This is leading to considerable volatility in oil prices, which is sending ripples of uncertainty through the economy. This will play out over the coming months. Planned investments will remain pending, purchases will be deferred, and savings will increasingly overshadow consumption. The economy has displayed resilience so far, but this resilience will be strained as its duration increases. Further, people’s needs are such that simple resilience will not suffice for long. If the external environment is going to remain unfavourable, the government will need to think radically about how to jumpstart the domestic economy. In the meantime, it will have to keep pumping money into capital expenditure even as other fiscal pressures mount.
Published – July 31, 2026 12:10 am IST
