India manufacturing PMI slows to two-year low in December, but sector ends 2025 on resilient note

India's manufacturing sector, a vital engine of its economic growth, experienced a notable slowdown in December 2025, with the Purchasing Managers' Index (PMI) reaching a two-year low. This deceleration was primarily driven by an easing of new orders, output, and employment, alongside a dip in export orders. However, the sector concluded the year on a 'resilient note,' buoyed by expectations of sustained activity fuelled by strong domestic demand.

To truly grasp the significance of this development, it's crucial to understand what the PMI represents. The PMI is a survey-based economic indicator, compiled by S&P Global, that provides insights into the prevailing conditions of the manufacturing and services sectors. It is derived from monthly surveys of purchasing managers in private sector companies, asking them about changes in new orders, output, employment, suppliers' delivery times, and stocks of purchases. A PMI reading above 50 indicates expansion compared to the previous month, while a reading below 50 suggests contraction. Therefore, a slowdown, even if above 50, implies a decelerating rate of growth. The December 2025 data, while still likely indicating expansion, showed a reduced pace, signalling potential headwinds.

The background context for this slowdown is multifaceted. Globally, economic uncertainties stemming from geopolitical tensions, persistent inflation in major economies, and fluctuating commodity prices have impacted global demand and supply chains. For India, while domestic consumption has largely remained robust, the dip in export orders suggests that global demand for Indian manufactured goods might be softening. Historically, Indian manufacturing has aimed to increase its share in the national GDP, a goal actively pursued through initiatives like 'Make in India,' launched in 2014, to transform India into a global manufacturing hub. The government's focus on improving infrastructure, ease of doing business, and introducing Production Linked Incentive (PLI) schemes across various sectors has been instrumental in attracting investment and boosting production. However, challenges like access to credit, skilled labour, and bureaucratic hurdles persist.

Several key stakeholders are directly impacted by and influence the manufacturing sector's performance. Manufacturers themselves are at the forefront, with their investment decisions, production levels, and hiring plans directly reflecting the economic climate. Consumers, through their purchasing power and demand, drive new orders. The Indian government, particularly the Ministry of Finance and the Ministry of Commerce & Industry, plays a critical role in formulating industrial policies, providing incentives, and ensuring a conducive business environment. The Reserve Bank of India (RBI) closely monitors such economic indicators to inform its monetary policy decisions, balancing inflation control with growth objectives. Investors, both domestic and foreign, use PMI data as a key input for their investment strategies, making it a crucial signal for capital flows.

This slowdown, despite the underlying resilience, matters significantly for India's economic trajectory. Manufacturing is a crucial component of India's Gross Domestic Product (GDP), contributing approximately 17-18%. Its health directly impacts overall economic growth. Furthermore, it is a major employment generator, particularly for the semi-skilled and skilled workforce. A sustained slowdown could impact job creation, which is vital given India's large young population and demographic dividend. The dip in export orders also affects India's trade balance and foreign exchange earnings. For the government, the data provides critical feedback on the effectiveness of its industrial policies, including the 'Make in India' initiative and various PLI schemes, prompting potential policy adjustments. While direct constitutional articles might not govern a specific economic indicator like PMI, the broader constitutional directives, particularly the Directive Principles of State Policy (DPSP) like Article 39(b) and (c), which advocate for the distribution of material resources to subserve the common good and prevent the concentration of wealth, implicitly guide the state's role in fostering economic development and industrial growth. The RBI's actions are governed by the Reserve Bank of India Act, 1934, which mandates it to maintain price stability while keeping the objective of growth in mind.

Looking ahead, the future implications are mixed. The 'resilient note' and strong domestic demand expectation suggest that the slowdown might be a temporary blip rather than a sustained downturn. However, continued global uncertainties could further dampen export prospects. The government might consider additional fiscal stimulus or targeted policy interventions to support manufacturing, especially MSMEs, which are often more vulnerable to economic shocks. The RBI will continue to weigh such data points carefully when deliberating on interest rate adjustments, aiming to support growth without stoking inflation. Sustained investment in infrastructure and technology will be crucial for enhancing the competitiveness of Indian manufacturing. The ability of the sector to convert anticipated strong demand into actual sustained output and employment growth will be key to India achieving its long-term economic aspirations.