India's economic activity showed a measured slowdown as 2025 concluded, with key business surveys indicating a moderation in growth momentum for both the dominant services sector and the manufacturing industry. The latest Purchasing Managers' Index (PMI) data, released in early January 2026, reveals a dip from November's levels, yet the readings remain firmly in positive territory, suggesting the expansion is intact.
December PMI Readings: A Closer Look
The headline figure for the services sector, which contributes the bulk of India's economic output, eased to 58.0 in December 2025. This marked an 11-month low, down from 59.8 in November. The manufacturing sector mirrored this trend, with its PMI falling to 55.0 from 56.6 over the same period. Both indices, however, stayed well above the critical 50-point mark that separates expansion from contraction.
This cooldown is widely interpreted as a natural moderation rather than the onset of a downturn. The economy experienced a significant festive upswing following GST rate cuts, and the December figures point to a stabilization after that surge. The factory sector's ability to hold up well indicates that underlying demand did not slacken dramatically.
The "Goldilocks" Backdrop of 2025
The broader context for this slight dip is a remarkably strong year for the Indian economy. 2025 has been characterized as a "Goldilocks" scenario, combining high growth with low inflation. This favorable economic climate persisted even in the face of significant export headwinds, primarily driven by sharply increased tariffs imposed by the United States.
The resilience shown across sectors underscores the economy's fundamental strength. The services sector's performance has been particularly encouraging, while manufacturing has maintained a steady pace of expansion. This dual strength has helped cushion the economy against external challenges.
The Path Ahead: From PMI Momentum to Earnings Growth
While the PMI data paints a picture of sustained business activity, the crucial test for 2026 will be the translation of this operational momentum into financial performance. Analysts and investors are keenly watching for a robust revival in corporate earnings, which have been slower to pick up than overall economic indicators.
The hope for the coming year is that the economic growth will manifest clearly in company profit statements. Stronger earnings are seen as the essential catalyst needed to justify current stock market valuations and put equity prices on a sustainable upward trajectory. The economy's solid foundation provides a promising base, but corporate profitability is the next frontier for validation.
In summary, the slight softening of PMI readings as the year closed is no cause for alarm. Instead, it represents a breather in an otherwise expansive phase for India's economy. The focus now shifts to whether businesses can convert this activity into stronger bottom lines in 2026.
