India Manufacturing Growth Slows to Two-Year Low as Demand Eases

India’s manufacturing sector remained in expansionary territory in December 2025 but lost significant momentum, according to the S&P Global/HSBC India Manufacturing Purchasing Managers’ Index published Jan. 2, 2026. The seasonally adjusted PMI fell to 55.0 from 56.6 in November, marking the weakest pace of expansion in about two years and signaling a broad-based moderation across new orders, production and employment.

The decline in the headline index reflected a slowdown rather than a contraction; a PMI reading above 50 denotes expansion. Nevertheless, the survey showed production growth eased markedly, with output reported at a 38-month low. New domestic orders continued to rise but at the slowest rate in two years, while new export orders increased at the weakest pace in 14 months, driven by limited demand from clients in Asia, Europe and the Middle East.

Employment trends mirrored the broader softening. Firms curtailed hiring and purchasing of inputs as activity cooled, with some respondents recording a near-standstill in recruitment. The survey identified weaker domestic demand and competitive pressures, together with subdued sales of particular product lines, as the principal drivers of the slowdown. Despite these headwinds, many manufacturers still expect higher output over the course of 2026, even as optimism about the year ahead softened to its weakest level in close to three-and-a-half years.

The PMI’s move lower carries immediate implications for markets and policy makers. As a leading indicator for industrial production and goods exports, a sustained moderation in PMI readings could translate into slower factory output and weigh on GDP growth in the first half of 2026. For financial markets, a cooling in manufacturing growth may reduce near-term upside pressure on inflation from supply-side demand, a factor central to monetary policy calibration. The Reserve Bank of India will be watching incoming data closely as it balances growth support with price stability, particularly if labour-market slack widens in response to softer hiring.

For firms, the slowdown underscores a shift from the robust pace seen through much of 2025 to a more selective expansion. Companies facing competitive pressures and weaker sales in certain lines are trimming input purchases and staffing plans, a defensive posture that could damp capital expenditure if conditions do not improve. Exporters may face uneven demand even as pockets of orders persist across Asia, Europe and the Middle East.

Economists note that while a single monthly reading does not presage a downturn, the breadth of the December moderation, spanning orders, output and employment, suggests a cautious start to 2026. The sector’s ability to regain momentum will depend on the pace of domestic demand recovery, durability of export markets and the extent to which firms translate lingering optimism about 2026 into investment and hiring. For now, the data point to a manufacturing sector moving from broad-based strength toward a more measured phase of growth.