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India's Industrial Rebound: How GST Reforms and Festive Boost Will Offset H1 Slowdown

India's industrial output experienced a slowdown in the first half of FY26, growing at just 3% compared to 4.1% in the previous year. However, the manufacturing sector showed resilience with improved growth of 4.1% during this period. A new Bank of Baroda report indicates that GST reforms and festive demand will help offset this slowdown in the second half. The combination of tax rationalization, lower inflation, and seasonal factors is expected to boost production and support economic momentum through the remainder of the financial year.

Key Points: India Industrial Output H1FY26 Slowdown Offset by H2FY26 Reforms

  • Industrial output growth slowed to 3% in H1FY26 from 4.1% in previous year
  • Manufacturing sector showed improvement with 4.1% growth despite overall slowdown
  • GST rationalization and festive season to boost consumption and production in H2FY26
  • Infrastructure and consumer durable sectors outperformed in September showing strong demand
  • Mining and electricity sectors dragged overall industrial performance in first half
2 min read

Slowdown in India's industrial output in H1FY26 will be offset in H2FY26 by GST reforms and festive boost: Report

Bank of Baroda report shows India's industrial slowdown in H1FY26 will be offset by GST reforms, festive demand, and lower inflation in H2FY26, signaling economic resilience.

"The ongoing reforms exhibit resilience in the economy as these indicators are expected to boost the production and support the growth momentum in H2FY26 - Bank of Baroda Report"

Mumbai, October 29

The slowdown in India's industrial output during the first half of the financial year 2025-26 (H1FY26) is expected to be offset by the Goods and Services Tax (GST) rationalisation, early arrival of the festive season, and lower inflation, according to a report by Bank of Baroda.

The report signals that these factors indicate growing strength in the domestic economy, even as uncertainty continues in the global environment.

It stated, "Industrial output registered slower growth at 3 per cent compared with 4.1 per cent in H1FY25.....The ongoing reforms exhibit resilience in the economy as these indicators are expected to boost the production and support the growth momentum in H2FY26."

The report also expects that the increase in consumption because of these reforms will help offset the uncertainty related to ongoing trade negotiations, providing short-term support to industrial and economic activity.

On a financial year-to-date (FYTD) basis, industrial output registered slower growth at 3 per cent in H1FY26, compared with 4.1 per cent growth recorded in H1FY25.

The weaker performance was mainly due to subdued growth in the mining and electricity sectors, which have tracked much slower expansion this year.

However, manufacturing showed improvement, with output growing by 4.1 per cent in H1FY26 against 3.8 per cent in the same period last year, reflecting resilience in the sector.

Industrial production, measured by the Index of Industrial Production (IIP), edged up to 4 per cent in September 2025 compared with 3.2 per cent in September 2024, showing signs of recovery.

The report noted that manufacturing and electricity production improved significantly in September, while mining output remained lower, partly due to rainfall.

Within manufacturing, sectors such as computers, basic metals, and electronics registered much higher growth during the month.

Growth in the infrastructure and consumer durable sectors also outperformed in September 2025, indicating strong demand momentum.

The report also mentioned that the combination of GST rationalisation, festive demand, and lower inflation will provide a boost to production and consumption in the coming months.

It outlined that these ongoing reforms and positive indicators exhibit the resilience of the Indian economy and are expected to support growth momentum in the second half of FY26.

- ANI

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Reader Comments

R
Rohit P
Manufacturing growth from 3.8% to 4.1% is encouraging, but I'm concerned about the mining and electricity sectors. Without proper infrastructure support, can we really sustain this recovery? The government needs to focus on these core sectors too.
A
Ananya R
Diwali shopping is definitely picking up in our local market. Lower inflation means people have more money to spend. Good to see electronics and consumer durables performing well - that's where most festive spending goes!
V
Vikram M
While the report is optimistic, I hope the GST rationalization actually benefits small and medium enterprises. Sometimes these reforms look good on paper but implementation at ground level is challenging. Fingers crossed!
M
Michael C
Working in the manufacturing sector in Pune, I can confirm the positive trend. Our factory has increased production by 15% for the festive season. The growth in computers and electronics is particularly noticeable in our supply chain.
K
Kavya N
The improvement from 3.2% to 4% in September IIP is a good sign. Hope this momentum continues through the rest of the financial year. Our economy has shown remarkable resilience despite global challenges. 🇮🇳

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