India’s Manufacturing Engine Loses Momentum as Tariff Pressures Slow Factory Growth

Image taken from internationaltradeinsights.com

India’s factory sector, which had been powering ahead for most of the year, is now running into resistance as higher US trade tariffs begin to bite. The latest HSBC India Manufacturing PMI slipped to 56.6 in November, down from October’s robust 59.2. While the index still signals expansion, the pace of improvement has cooled to its slowest level since February, reflecting a broader loss of steam across the industry.

The slowdown is showing up most clearly in new orders and output, both of which grew at their weakest rate in nine months. Even though Indian producers continued to win business in markets across Africa, Asia, Europe and the Middle East, growth in overseas demand softened noticeably. The New Export Orders index has now fallen to a 13-month low, pulling down confidence across the sector. Manufacturers also reported rising competitive pressures from global rivals, a trend that has started to weigh on hiring and expansion plans.

Economists warn that the pressure may intensify in the coming quarters. IDFC First Bank noted that the full shock of the 50% bilateral tariffs will be felt in the second half of FY26, especially with the steepest increases kicking in after August. The bank added that government expenditure—another key driver of industrial demand—is likely to moderate due to weakening tax revenue collections, removing yet another layer of support for the sector.

A Possible Relief Valve: Trade Pact With the US

There is, however, a sliver of optimism on the horizon. Commerce secretary Rajesh Agarwal recently said India is aiming to sign the first phase of its bilateral trade agreement with the US by the end of 2025. A favourable deal could relieve Indian manufacturers from some of the tariff pressure and revive export momentum. But until then, the sector must navigate a more challenging global landscape.

HSBC’s chief India economist Pranjul Bhandari noted that the domestic boost from earlier GST cuts appears to be fading and may not be strong enough to counter the drag from tariffs. Additionally, with demand weakening and input cost pressures easing, manufacturers had little room to increase prices—pushing the PMI’s selling price index to an eight-month low.

All eyes are now on the Reserve Bank of India’s monetary policy committee, which meets from 3–5 December. Markets have been expecting a 25-basis-point cut in the repo rate, bringing it to 5.25%, especially as inflation has fallen below the RBI’s lower tolerance band of 2%. But with GDP growth surprising on the upside at 8.2% in the September quarter—the strongest reading in six quarters—some economists believe the central bank may choose to wait before easing policy.

India’s manufacturing story is far from derailed, but the latest data shows an economy adjusting to new global realities—where tariffs, competitiveness and policy decisions will jointly shape the next phase of growth.