India's factory sector growth slows to 2-year low in December
What's the story
India's manufacturing sector has recorded its slowest growth in two years, with a significant decline in demand and production. The HSBC India Manufacturing Purchasing Managers's Index (PMI) compiled by S&P Global fell to 55 in December from November's 56.6, missing a preliminary estimate of 55.7. This is the lowest reading since December 2023, indicating a possible economic slowdown after an impressive 8.2% growth rate during the July-September quarter.
Demand slowdown
Weaker domestic demand impacts factory activity
The decrease in the PMI indicates a loss of momentum in India's manufacturing sector. The main contributor to this slowdown is weaker domestic demand, which has caused new orders—a key indicator of factory activity—to grow at its slowest pace in two years. This decline is reflected in the employment index, which slipped to its weakest level since early 2024 and hovered just above the 50 mark, signaling near-stagnation in job creation.
Production decline
Factory production and export growth slow down
Factory production has also witnessed a sharp slowdown, growing at its slowest pace in 38 months. Companies have attributed this decline to lower customer numbers, even though overall expansion remains solid by historical standards. External demand hasn't helped either, with export growth slowing to a 14-month low—possibly due to US tariffs of up to 50% on certain Indian goods.
Inflation impact
Inflation remains subdued, RBI may cut rates
On the inflation front, input costs have only marginally increased. This has given manufacturers room to raise selling prices at the slowest rate in nine months. India's inflation edged up to 0.71% in November from a record low of 0.25% in October. The Reserve Bank of India (RBI) may consider further rate cuts to boost weak urban household consumption, having already cut rates by a total of 125 basis points since February 2025—its most aggressive easing since 2019.