India’s Manufacturing Sector Hits 12-Month Low in December

India’s manufacturing sector recorded a 12 month low growth in December due to slow down growth in factory orders and expansion of production. It is also due to increased competition and price pressures on the operations of the sectors.

India’s Purchasing Managers’ Index (PMI)
The HSBC PMI compiled by S&P Global states that in the month of December PMI tone down to 56.4 from 56.5 in the month of November. It indicated a muted improvement in operational conditions. Despite the fall in December, the average PMI for the year 2024 increased to 57.5 from its earlier average record of 56.8 in the year 2023. It implies that even after falling from 56.5 in the month of November, it remained above its average growth in the long-run of 54.1, indicating a strong rate of growth. In the second quarter of the fiscal year 2025 recorded a slow growth in the manufacturing sector. In the September quarter, it fell to 2.2 percent against 14.4 percent in the previous quarter of the same period and 7 percent in the June quarter.

In the September quarter, India’s GDP growth slowed down to 5.4 percent. In the first quarter of the fiscal year 2025, India’s GDP growth was around 6.7 percent compared to 8.2 percent in the same period of the previous year.

Despite the joint-slowest in a year which is equal to September growth rate, the latest expansion is certainly sharp. The survey’s qualitative data hints that growth was mainly hampered due to competition and price pressures. Also, the output levels increased at a substantial pace even in the situation of slowest growth in the year 2024. This was mainly due to favorable demand acting as the main determinant of production growth.

As per the data of the month of December, the sector observed the least extent of improvements in the year 2024 in the situation of slower rise in output, new orders and purchase stocks. The growth rates remain substantial and aided in giving support to expansion in purchase and employment levels. The survey also stated that cost pressures went mild due to fall in cost burdens, however inflation in prices charged on consumers remains historically high.

This survey is formulated on the basis of the responses collected from the questionnaires given to 400 firms in the manufacturing sector and 50 point mark threshold which separates expansion from contraction.

The Economist at HSBC Ines Lam states that the Indian manufacturing sector ended the strong year 2024 with signs of moderate cooling trend. The new orders observed the slowest rate of expansion in the year, indicating weaker growth in future production. Despite this, the new export orders observed a rise in growth at faster speed from the month of July. Although an increase in overall prices of input has tone down slightly, the cost pressures on Indian manufacturing firms is still high. In the month of December , the input costs kept on rising due to firms recording an increase in container, material and labour costs. While the selling price was high due to firms continuously raising selling prices at a faster rate for the last 11 years. This is the reason for customers facing hiking in prices higher than the range of rise in cost pressures.

Impact on employment levels and infrastructural output
In case of employment levels, the sector observed a rise in job creation level for the 10th month in a row. Also the rate of employment level is the most rapid in four months. It accounts to one out of the ten companies employing extra employees compared to less than 2 percent of the firms that are doing layoffs. It is quite significant that infrastructural output in India, which accounts for about two-fifths of industrial production, observed a surge to a four-month high in the month of November. As per the data released, the reason for this was due to a rise in six out of the eight core constituent sectors during the month.

Other aspects such as level of input inventories, purchasing growth and smaller lead times supported the monthly rise in growth. Sharp accumulation level was observed, but the weakest since December 2023.

Perspective of the Manufacturing firms
The outlook of manufacturing firms is optimistic in terms of rise in output levels. This optimism can be seen in advertisements, investment and expectation of favorable demand. However, this perspective is certainly affected by concerns such as inflation and competitive pressures.

While the manufacturing sector hit a slump to a 12-month low in December, service sector has significantly regained momentum in the last month after facing a mild moderation in the month of November. This is due to new orders and output levels rose to a four month high in service sector activity.

The image added is for representation purposes only