India: Industrial activity remains firm as consumer demand shows signs of moderation

• • Power demand and merchandise exports reach fresh highs in May, supporting industrial activity

• • Steel, pig iron and raw material imports point to continued momentum across infrastructure and manufacturing

• • Automobile sales and GST collections moderate, highlighting an increasingly uneven growth profile

Morning Brief: India’s macroeconomic indicators for May point to an economy where industrial activity continues to outperform consumer demand. Record electricity consumption, stronger merchandise exports and resilient metals production indicate that infrastructure spending, manufacturing and investment remain the principal drivers of growth. At the same time, softer automobile sales, moderating GST collections and a manufacturing sector expanding at a more measured pace suggest household demand is beginning to normalise after the strong recovery witnessed over the past year.

The divergence is becoming increasingly important for commodity markets. Rising imports of iron ore and coal, together with firm steel and pig iron production, suggest industrial raw material demand remains healthy despite growing uncertainty surrounding inflation, monsoon progress and global trade. The latest data indicate that India’s growth story continues to be led by investment rather than broad-based consumption, reinforcing demand for construction-linked commodities even as consumer-facing sectors lose some momentum.

Investment cycle continues to underpin industrial activity:

Industrial and commodity indicators remained broadly supportive during May. Crude steel production recovered to 14.1 million tonnes from 13.8 million tonnes in April, while pig iron production climbed to a one-year high of 0.79 million tonnes, highlighting continued activity across construction and manufacturing. Steel imports also edged higher to 0.70 million tonnes, reflecting healthy downstream demand despite rising domestic production.

Raw material procurement strengthened further during the month. Iron ore imports rose to 1.24 million tonnes, while coal imports increased to 22.8 million tonnes, indicating that manufacturers continued to replenish inventories and secure feedstock for production. Daily average electricity consumption also reached a record 5.32 billion units, supported by industrial activity alongside higher seasonal power demand during the summer months.

Taken together, these indicators suggest infrastructure projects and manufacturing activity continue to provide a stable foundation for industrial growth even as broader macroeconomic conditions become more challenging.

Consumer-facing indicators show signs of normalisation:

While industrial activity remained firm, consumer-oriented indicators painted a more measured picture. Automobile production was broadly unchanged at 2.92 million units, while vehicle sales eased to 2.41 million units, extending the gradual moderation seen since the beginning of the year. The slowdown appears to reflect a normalisation in demand rather than a broad deterioration in market conditions.

GST collections also moderated to 1.94 trillion after April’s record 2.43 trillion, reflecting the fading impact of year-end tax settlements. Meanwhile, the Manufacturing PMI improved marginally to 55.0 from 54.7 in April, remaining comfortably in expansionary territory but below the stronger readings recorded through much of the second half of 2025. Together, these indicators suggest domestic demand continues to expand, albeit at a more sustainable pace than earlier in the cycle.

Exports provide an additional source of support:

The external sector strengthened further during May, with merchandise exports rising to US$45.2 billion, the highest monthly value in the current data series. The improvement provides an important offset to moderating domestic demand and reinforces activity across export-oriented manufacturing industries.

Structural growth drivers also remained intact. Electric vehicle registrations reached 2.64 lakh units, remaining well above year-ago levels and continuing to support demand across automotive supply chains, including steel, aluminium and copper-intensive components. While EV registrations eased from March’s peak, the broader trend continues to reflect expanding investment in India’s clean mobility ecosystem.

Outlook:

India enters FY27 with industrial activity continuing to outperform consumer demand. Infrastructure spending, manufacturing output and exports remain the principal drivers of economic momentum, while rising raw material imports and resilient metals production indicate commodity demand remains well supported.

The key question over the coming months is whether investment-led growth can continue to offset moderating household demand. Inflationary pressures, monsoon progress and global trade developments will increasingly shape the outlook for both industrial activity and commodity consumption. For now, however, the balance of indicators suggests India’s investment cycle remains intact, providing continued support for steel, coal, iron ore and other construction-linked commodities through the early part of FY27.