Industrial output grew at an upwardly revised 7.2% in November, showing strong growth on festive demand and the goods and services tax (GST) rate cuts.

India's industrial production expanded 7.8% in December—its fastest growth in two years—aided by strong growth in the manufacturing, mining and electricity sectors, official data showed on Wednesday.

Factory output grew in December more than twice as fast as the 3.7% expansion seen in the year ago period.

Industrial output had grown at an upwardly revised 7.2% in November, showing strong growth on festive demand and goods and services tax (GST) rate cuts.

The data shows all-round improvement in industrial growth, with manufacturing and mining sectors showing strong momentum in November and December. Output of basic metals, motor vehicles and pharmaceuticals showed strong growth in December.

Experts said electricity and mining output touched an 18-month and a nine-month high, respectively, in December, lifting the overall factory output growth to a 26-month high. They also said the strong show should be seen in the light of the low base effect.

Going by the use-based classification, the output of capital goods, infrastructure construction goods and consumer goods recorded robust expansion in December, adding to the manufacturing sector's overall performance.

Manufacturing sector expanded 8.1% in December, its second-fastest expansion this fiscal year, after an upwardly revised 8.5% growth in November. The sector had expanded 3.7% in December 2024. In the first seven months of this fiscal year, manufacturing growth had remained tightly in the 2-6% growth range, indicating that the GST rate cut taking effect on 22 September has given a boost to the sector subsequently.

Mining output grew 6.8% in December, faster than the upwardly revised 5.8% growth in November. The sector had grown 2.7% in December 2024.

Electricity generation saw a rebound with a 6.3% growth in December, at par with the year-ago level. In November, power generation had contracted 1.5%.

During April-December, industrial production grew 3.9%, compared with 4.1% a year ago. Experts said growth rates in the Index of Industrial Production (IIP) are increasingly displaying a disconnect with the manufacturing growth captured in the gross value-added (GVA) data. The government had in November estimated manufacturing output at 7.7% and 9.1% in the June and September quarters of this fiscal, respectively.

The IIP basket does not seem to be fully capturing the current make-up of India's industrial landscape, as the industry has evolved since the current series with FY12 as base year was conceived, said Rumki Majumdar, economist at Deloitte India.

"That said, for manufacturing to grow sustainably, India will need to see sustained demand in the long run. Capacity utilization in factories is at around 75%, which is good but not sufficient trigger for fresh private investments. Also, the surplus production capacity in China, in the wake of US tariffs, is a concern globally," said Majumdar.

India's recent trade deals and efforts to diversify exports will help build strong export demand for manufactured goods and improve competitiveness, added Majumdar.

Capital goods output expanded 8.1% in December, as against a 10.5% growth a year ago.

Infrastructure goods output expanded 12.1% in December, as against an 8.4% growth seen a year ago. It is a notch below the 13% growth seen in November.

The output of consumer durables such as air-conditioners, television sets and automobiles grew 12.3% in December, as against 8.1% seen a year ago. It is also an improvement upon the 11.2% expansion seen in November. The GST rate cuts implemented in September are aiding growth in consumer durables, said experts.

Output of consumer non-durables recovered in December, clocking an 8.3% growth. It had seen a contraction in the year ago level, and had remained in the negative zone for seven of the nine months in the current fiscal year.

Experts said the high consumer non-durable sector growth after the festive season suggested that inventories with wholesalers and manufacturers have exhausted, and according to the manufacturer's assessment, the demand is likely to continue. "These numbers have given some anecdotal evidence that the GST rationalization has pushed demand in the economy. This coupled with low inflation would continue to push demand," said Devendra Kumar Pant, chief economist at India Ratings and Research.

"Investment demand has also remained steady, as indicated by the stable and healthy year-on-year growth in the capital and infrastructure sectors at 8.1% and 12.1%, respectively, in December 2025," said Pant.

The government had, earlier this month, projected that India's gross domestic product (GDP) will expand 7.4% in FY26, aided by a strong 7.4% manufacturing growth and a 9.1% services sector expansion.

Experts pointed out that capacity utilization in factories remaining at around 75% does not bode too well for fresh private investments. Also, the surplus production capacity in China, in the wake of US tariffs, is seen as a drag on private investments, they said.

The Reserve Bank of India had last month said that a seasonally-adjusted capacity utilization of India's manufacturing sector was at 74.8% in the September quarter, which was well above the long-term average.