In March 2025, India’s manufacturing sector experienced its most significant expansion in eight months, driven primarily by strong domestic demand. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose to 58.1, up from 56.3 in February, indicating a robust improvement in manufacturing business conditions. This marks the 33rd consecutive month of growth, with a PMI above the neutral 50.0 threshold
Key Drivers of Growth
- Domestic Demand: The surge in new orders and output was largely fueled by domestic consumers, offsetting weaker global demand.
- Price Dynamics: Despite rising input costs, output price inflation slowed to a one-year low, suggesting that manufacturers are absorbing costs to maintain competitiveness.
- Business Optimism: Approximately 30% of firms anticipate higher output in the coming year, reflecting positive sentiment in the industry.
While the manufacturing sector shows resilience, external factors pose potential challenges
- US Tariffs: The recent imposition of a 26% tariff by the United States on Indian imports is projected to reduce India’s GDP growth by 20-40 basis points in the financial year 2025-26. This could prompt the Reserve Bank of India (RBI) to consider further interest rate cuts to stimulate the economy.
- Global Demand: Export orders have grown at a slower pace, indicating subdued international demand that could impact future manufacturing output.
Policy Implications
Economists predict that the RBI may implement additional interest rate cuts totaling 75 basis points by the end of 2025 to counteract the economic slowdown and mitigate the impact of US tariffs. The central bank’s monetary policy committee is set to meet soon to discuss these measures.
India’s manufacturing sector demonstrates robust growth driven by domestic demand. However, external challenges such as international tariffs and fluctuating global demand necessitate proactive policy measures to sustain this momentum and ensure long-term economic stability.
