India's manufacturing sector posts weakest improvement in 2 years

Its production hits a 38-month low as new orders softened.

India's manufacturing industry closed out 2025 in solid shape, though signs of a slowdown emerged across several economic measures as the year drew to a close.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) fell from 56.6 in November to 55.0 in December, signalling the weakest improvement in the sector's health in two years.

Nevertheless, the current figure remained above its long-run average.

New orders continued to rise sharply, though this marked the slowest increase since December 2023. Similarly, production levels expanded at the weakest pace since October 2022.

Part of the slowdown in total sales reflected a softer increase in international orders. New export orders rose to the least extent in 14 months. Where growth was reported, survey panellists cited better demand from clients in Asia, Europe and the Middle East.

Firms limit hiring and purchasing

The softer increase in new orders prompted companies to limit the extent to which inputs were purchased. Buying levels still rose substantially, but the rate of growth retreated to a two-year low.

Amidst a general lack of pressure on operating capacities, there was only a marginal increase in factory employment during December. The pace of job creation was the lowest in the current period of growth that began in March 2024.

Outstanding business volumes did rise in December, but the pace of accumulation was only marginal as the respective seasonally adjusted index registered close to the no-change mark of 50.0.

Stock trends continued to diverge in December, with input inventories rising sharply whilst holdings of finished products fell solidly.

The latter saw its joint-fastest drop in eight months, as firms reportedly used recently manufactured goods to fulfil current sales.

The rise in stocks of purchases was the least pronounced in two years amidst a softer upturn in buying levels and the usage of materials to supplement production.

Price pressures remain subdued

December data indicated another increase in input costs at Indian manufacturers, which they attributed to higher prices for bamboo, chemicals, glass, leather and packaging. Little changed from November, however, the rate of inflation was below its long-run average and amongst the lowest seen in 2025. Output prices likewise increased at a softer pace, one that was the least pronounced in nine months.

Indian goods producers foresee an increase in output during 2026 relative to present levels, but the overall level of sentiment faded to its lowest in close to three and a half years. Whilst advertising, positive demand trends and new product releases were seen as tailwinds to the outlook, some firms were concerned about competitive pressures and market uncertainty.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said:

"Even with growth momentum easing, India's manufacturing industry wrapped up 2025 in good shape. The sharp rise in new business intakes should keep companies busy as we head into the final fiscal quarter, and the lack of major inflationary pressures could continue to support demand.

"We have seen a steady spell of softer growth in new export orders. In fact, the share of companies signalling higher international sales in December was about half of the average for 2025. The survey's anecdotal evidence has also pointed to a narrower range of export destinations, with goods mainly heading to Asia, Europe and the Middle East. With Indian manufacturers facing less intense cost pressures than elsewhere, many will be hoping that competitive pricing can help bring in new business from other regions in the new year."