The year-on-year (Y-o-Y) expansion in economic activity eased to 11.4 per cent in July from 12.1 per cent in June, after rising continuously for the past three months, as measured by the ICRA Business Activity Monitor.
Mining output, electricity generation, GST e-way bill generation, and domestic airline passenger traffic largely drove the deterioration in the Y-o-Y growth of the ICRA Business Activity Monitor in July 2026 vis-à-vis June 2026. The Y-o-Y performance of eight of the 16 constituent indicators weakened in July compared to June.
The growth in core sector output also eased to 5.4 per cent in July 2026 from an upwardly revised 6 per cent in June 2026, amid a deterioration in the performance of five of the nine sectors.
The growth in iron ore output moderated sharply to 29.5 per cent in July 2026. Electricity generation and steel output also recorded slower growth, while fertiliser and crude oil output saw steeper contractions. In contrast, coal output growth touched an 11-month high of 7.6 per cent in July, while cement output rose to a seven-month high of 13.1 per cent, indicating that construction activity likely remained healthy.
Given the trends in core output, ICRA expects the Y-o-Y growth in the Index of Industrial Production (IIP) to moderate to 6-6.5 per cent in July 2026 from 7.3 per cent in June.
The pickup in rainfall in July also weighed on electricity generation and mining output. Electricity generation growth slowed to 9 per cent in July, while mining output growth eased to 4.9 per cent. Trade- and transport-related indicators such as port cargo traffic, non-oil exports, GST e-way bill generation, and domestic airline passenger traffic saw a weaker Y-o-Y performance in July 2026 vis-à-vis June 2026.
The slowdown, however, was not broad-based. Among the auto-related indicators, only two-wheeler output saw a weaker Y-o-Y performance in July, while passenger vehicle output and vehicle registrations recorded stronger growth.
Financial indicators such as bank deposits and non-food bank credit, as well as petrol and diesel consumption, saw an improvement in their Y-o-Y performance between these months. Cement output growth increased to 13.1 per cent from 9.9 per cent, likely supported by inventory replenishment.
Consequently, the all-India unemployment rate declined to a four-month low of 5.1 per cent in July. The rural unemployment rate fell to 4.5 per cent in July from 5 per cent in June. This decline was likely driven by a seasonal pickup in agricultural activity, particularly kharif sowing. However, urban labour market conditions were steady in July 2026, with the rise in the labour force participation rate (LFPR) outpacing that in the worker population rate (WPR), leading to a mild uptick in the unemployment rate to 6.7 per cent in July 2026 from 6.6 per cent in June.
ICRA remains cautious about the potential impact of sub-par monsoon rainfall on crop output and farm incomes, which could weigh on rural demand in the near term. Additionally, retail inflation is expected to edge up further over the next few months, which may constrain discretionary spending.
