The manufacturing sector of India recorded its weakest growth in over one year during February 2025 due to weakening domestic and international demand. While the growth weakened, employment within the sector recorded a strong rise and inflation pressures eased, latest figures have indicated.
Manufacturing PMI Posts 14-Month Low
The HSBC India Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, declined to 56.3 in February from 57.7 in January, the lowest since December 2023. The decline was driven by weaker growth in sales and production, with input purchasing slowing to a 14-month low. While the PMI eased, it remained above the 50-mark, indicating continued expansion in the manufacturing sector. citeturn0search0
Domestic and International Demand Softens
Both domestic and foreign demands lost strength. New orders and production sub-indexes fell to 14-month lows, suggesting a moderate weakening of domestic demand. Foreign demand also slowed down from over 14-year high in January, indicating a general cooling off in overseas demand for Indian-made goods. citeturn0news33
Employment and Investment Trends"}
Despite the decline in demand, manufacturers continued to hire more workers, extending employment expansion to a year, albeit at a slightly softer pace than in January. In addition, factories reported improved technology spending and introduction of new projects, which suggests that there is an emphasis on increasing productivity and long-run growth potential. citeturn0news33
Inflationary Pressures Ease
Input costs rose at the slowest rate in 12 months, and the rate of growth in charges moderated to a five-month low. That suggests some of the cost pressures were passed on to consumers, and retail inflation softened to a five-month low in January. The softening of inflation supports expectations of further rate cuts by the Reserve Bank of India (RBI) to stimulate economic growth. citeturn0news33
GDP Growth and Economic Outlook
India's gross domestic product (GDP) grew 6.2% in the October-December quarter, up from 5.6% in the second quarter, driven by increased government and consumer spending. However, overall growth for 2025 is likely to be 6.3-6.8%, down from 8.2% in the previous fiscal year. Manufacturing slowdown and weak urban demand remain issues for sustaining high growth rates. citeturn0news35
Monetary Policy Response
The RBI Monetary Policy Committee reduced the repo rate in February, citing sharp deceleration in the manufacturing and slack urban consumption as major reasons. Softer domestic inflation provided the MPC an opportunity to accelerate economic growth by reducing the repo rate by 25 basis points, its first reduction in nearly five years. citeturn0news36
Future Prospects
In spite of the prevailing slowdown, business prospects for the next twelve months are upbeat, supported by good demand trends, strong customer levels, and marketing initiatives. The industry is banking on productivity gain through technology spending and new project orders to leverage the growth opportunities in the future. citeturn0news33
In short, although India's manufacturing sector is hindered by cooling demand, employment growth in recent times, declining inflationary pressure, and dovish monetary policies provide a platform for potential turnaround and sustained growth in the near future.