Manufacturing activity in India deteriorated further in December 2024, with the Purchasing Managers' Index (PMI) dropping to 56.4 from 56.5 in November. According to S&P Global's HSBC Final India Manufacturing PMI, this was the joint-weakest growth rate in 2024. The research indicated that while the headline figure fell from 56.5 in November, it remained above its long-run average of 54.1, indicating a strong rate of growth.

"India's manufacturing activity concluded a robust 2024 on a weaker note, with additional signs of a modest slowdown in the industrial sector. The rate of increase in new orders was the smallest of the year, implying weaker development in future production. However, new export orders increased at the quickest rate since July, indicating an improvement. The growth in input prices moderated slightly, bringing the year to a close with Indian manufacturers feeling the impact of high cost pressures," said Ines Lam, Economist at HSBC.

Manufacturing PMI fell to a joint 11-month low of 56.5 in November, from 57.5 in October, indicating a slowing of manufacturing expansion. Despite this slowdown, the PMI remained over 50, indicating that the manufacturing sector continues to expand. The downturn was blamed on greater competition and rising pricing pressures, with input cost inflation hitting its highest level since July. Notably, selling prices rose sharply, the largest increase since October 2013.

What is the Manufacturing PMI?

Manufacturing PMI data is an economic indicator that measures activity in the manufacturing sector. It is based on a poll of buying managers from several manufacturing industries and offers insights on business conditions such as production, new orders, employment, supplier delivery times, and inventory levels.

This data is closely monitored as an early indication of economic health, assisting firms, policymakers, and investors in predicting developments in the manufacturing industry and the entire economy.

GDP Slows

India's GDP growth dropped to 5.4 percent in the second quarter of FY25, its slowest pace in nearly two years. Key reasons include slow manufacturing growth (2.2 percent) and lower private spending due to rising prices and borrowing costs. Headline inflation exceeded the Reserve Bank of India's (RBI) target of 4-6 percent, reducing buying power. Government spending also fell due to election-year fiscal restrictions.

Urban demand weakened due to high food prices and slow wage growth, while rural consumption showed indications of recovery. Despite these hurdles, agriculture expanded 3.5%, recovering from a prolonged downturn. The Reserve Bank of India reduced its annual growth prediction from 7.2% to 6.6%, indicating uncertainty about economic momentum. Policymakers must strike a balance between controlling inflation and stimulating demand.