India's production showed signs of improvement in last fiscal, current fiscal may witness pressure: Bank of Baroda

However, the report also mentioned that the first quarter of the current fiscal year may witness some pressure, especially due to uncertain global trade conditions, with export growth remaining a key risk.

It said, "Given the latest improvement in manufacturing PMI for Mar'24, along with pick-up in e-way bill generations and GST collections, we expect production to have reported some improvement towards the end of the last fiscal year. In Q1 of the current fiscal year, some headwinds are appearing."

The report highlighted that the Reserve Bank of India's move to reduce policy rates is expected to lower the cost of credit, offering relief to the manufacturing sector. This development is expected to encourage production and investment.

Additionally, the Trump administration's announcement of a 90-day pause on the implementation of country-specific tariffs, along with a softening of global commodity prices, is also seen as a positive factor for the sector's near-term outlook.

Despite these positives, the latest data on industrial output paints a mixed picture. India's Index of Industrial Production (IIP) growth slowed to 2.9 per cent in February 2025, down from 5.6 per cent in February 2024 and 5.2 per cent in January 2025.

The decline in output was broad-based when compared to the same month last year. Notably, the mining and electricity sectors witnessed the most significant slowdown, while the manufacturing sector saw a more moderate decline.

Within the manufacturing segment, many key industries reported lower output in February 2025 compared to the previous year. These included basic metals, wearing apparel, chemicals, and motor vehicles. On the other hand, some sub-sectors such as pharmaceuticals, textiles, and computers/electronics saw an improvement in output.

Under the use-based classification, only capital goods showed year-on-year growth in February 2025. Output of primary goods, intermediate goods, infrastructure goods, and consumer durables fell. Production of consumer non-durables also declined, though the pace of fall was slower than that in February 2024.

Overall, the IIP growth for the fiscal year so far (FYTD) has moderated to 4.1 per cent, compared to 6 per cent growth in the same period last year. While production likely picked up towards the end of FY25, aided by favorable domestic indicators, the outlook for Q1 of FY26 remains mixed.

Lower borrowing costs and a temporary pause on trade tariffs offer some cushion, but volatility in markets and the uncertainty from the ongoing US-China trade tensions continue to pose risks for India's manufacturing growth.