India’s manufacturing sector is losing its edge due to the adverse impact of US trade tariffs. The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) slid to 56.6 in November from 59.2 in October. A reading above 50 indicates expansion, but the latest figure marks the slowest improvement in operating conditions since February.
Total new orders and output grew at their weakest pace in nine months. Although Indian firms saw favourable sales trends in Africa, Asia, Europe and the Middle East, export order growth softened. The New Export Orders index hit a 13-month low last month. Consequently, the Future Output Index, a PMI gauge of business confidence, slipped to a nearly three-and-a-half-year low. Manufacturers expressed concerns about the competitive landscape, including competition from international firms. These factors also weighed on hiring trends in the manufacturing sector.
“The key drag on growth in H2FY26 is expected to be from elevated tariffs and lower support from government expenditure,” IDFC First Bank said. “The full impact of the 50% bilateral tariff will be felt in H2FY26, with an elevated tariff effective from August-end. Government expenditure growth is expected to moderate in H2FY26, due to sharp slowdown in tax revenue collections,” it added.
Trade agreement crucial
On the bright side, commerce secretary Rajesh Agarwal said last week that India is expected to sign the first tranche of its bilateral trade agreement with the US by the end of 2025.
Favourable deal contours could take significant pressure off Indian manufacturers and help Indian exports to recover. HSBC’s chief India economist Pranjul Bhandari said the boost to the domestic economy from the goods and services tax (GST) cuts may be fading, and might be insufficient to offset the tariff headwind to demand. Also, in a weak business environment and with input cost inflation easing, manufacturers didn’t have much room to raise prices, so the PMI sub-index for selling charges was at an eight-month low in November.
Given this, the Reserve Bank of India’s (RBI’s) monetary policy committee meeting, scheduled from 3 to 5 December, is crucial. The RBI is widely expected to trim the repo rate by 25 bps to 5.25% due to benign inflation, with consumer price index (CPI) inflation now below the central bank’s lower tolerance band of 2%. But with the September-quarter gross domestic product (GDP) reading on Friday coming in at a better-than-anticipated 8.2%, the fastest in six quarters, some economists are now rooting for pause.
