India's manufacturing sector concluded 2025 on a softer note, with the key Purchasing Managers' Index (PMI) registering a decline in December. The latest data reveals a measured deceleration in the pace of expansion, though the sector continues to signal growth.
Key PMI Figures Show Growth Momentum Easing
The seasonally adjusted HSBC India Manufacturing PMI, compiled by S&P Global, fell to 55.0 in December from 56.6 in November. This marks the weakest improvement in the sector's health in two years. Despite the month-on-month dip, the reading remains firmly above the crucial 50.0 threshold that separates expansion from contraction. It also stayed above its long-run average of 54.2, indicating that growth, while slower, is still historically robust.
The survey pointed to weaker growth in both factory output and total sales as primary drivers for the index's decline. Notably, the rise in new export orders was the slowest seen in 14 months, reflecting softer external demand. Business sentiment regarding future output prospects also waned, slipping to its most subdued level since October 2022.
Underlying Strength Amidst a Global Slowdown
Experts were quick to highlight that the PMI data points to a moderation in growth speed rather than a loss of fundamental strength. Rishi Shah, Partner and Economic Advisory Services Leader at Grant Thornton Bharat, noted that domestic demand remains resilient and cost pressures are benign. "This provides an important buffer at a time when the global environment is becoming more uncertain," he said, adding that India's growth impulse is becoming increasingly inward-looking, which could help navigate global volatility.
The survey's findings align with other macroeconomic indicators. The Indian economy grew at an impressive 8.2% in Q2 FY26 and 8% in H1 FY26. Exports registered a 5.43% growth during the April-November period of the fiscal year, and manufacturing performance, as per the Index of Industrial Production (IIP) data, has been positive.
Survey Highlights Competitive Pressures and Employment Trends
The PMI report described the end of 2025 as "characterised by a loss of growth momentum." While positive demand trends continued to support sharp increases in new orders and production, the rates of expansion eased due to competitive pressures and subdued sales for specific items. The survey also revealed that employment rose at the slowest pace in the current 22-month period of job creation.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, stated, "Even with growth momentum easing, India's manufacturing industry wrapped up 2025 in good shape." She pointed out that the sharp rise in new business should keep companies busy and that the lack of major inflationary pressures could continue to support demand. However, she highlighted a "steady spell of softer growth in new export orders," with goods mainly heading to Asia, Europe, and the Middle East.
On the fiscal front, the government's decision to cut GST rates in September did not lead to a fall in indirect tax revenue. In fact, collections rose 6.1% year-on-year to ₹1.74 trillion in December. Direct tax collections also showed strength, with net collections for FY26 touching ₹17.05 trillion as of mid-December, an 8% increase over the previous year.
Looking ahead, Indian goods producers remain optimistic about output growth in 2026, though the overall level of positive sentiment has faded to its lowest in nearly three-and-a-half years. The sector now navigates a landscape where resilient domestic demand and competitive pricing may be key to sustaining growth amidst global headwinds.
