The manufacturing sector in India felt the pinch of heightened US tariffs in November, with growth momentum slowing to its weakest pace in nine months. The latest HSBC India Manufacturing Purchasing Managers' Index (PMI), a key gauge of factory activity, dipped to 56.6 in November from 59.2 in October. This marks the slowest improvement in operating conditions since February, though the reading remains above the 50-mark that separates expansion from contraction.
Tariffs and Diversification: A Mixed Impact
The direct impact of former US President Donald Trump's 50% tariffs on Indian goods was a primary factor behind the deceleration. Pranjul Bhandari, Chief India Economist at HSBC, stated that the final November PMI data confirmed the tariffs caused the manufacturing expansion to slow. The report noted a mild loss of overall growth momentum despite companies reporting favourable international sales trends to clients in Africa, Asia, Europe, and the Middle East.
This geographical diversification provided a crucial cushion. However, the data revealed a concerning trend: new export orders increased at their slowest rate in over a year. The export orders PMI component dropped to its lowest point in 13 months. Bhandari linked this to growing tariff-related worries, which also contributed to a significant decline in future output expectations among businesses, hitting the lowest confidence level in about three-and-a-half years.
Inflation Eases as Job Growth Continues
November brought some relief on the inflation front. Input costs and selling prices rose at their most subdued rates in nine and eight months, respectively. Indian manufacturing firms responded to the cooler growth in new orders by adjusting their recruitment and procurement activities.
Despite the slowdown, the sector continued to generate employment, extending a positive streak of job creation to 21 consecutive months. However, the rate of job generation was the most modest seen during this period.
Trade Talks Offer a Glimmer of Hope
On the diplomatic front, there is potential for resolution. Commerce Secretary Rajesh Agrawal expressed optimism on November 28 about finalising a framework trade agreement with the United States within the year. Such a deal could address the mutual tariff issues plaguing Indian exporters.
The negotiations have been ongoing, with initial hopes of concluding a first-phase bilateral trade deal by the fall of 2025. Agarwal acknowledged that a full Bilateral Trade Agreement (BTA) would take more time, but confirmed India's continued engagement in extensive discussions with the US on the framework pact.
Economist Pranjul Bhandari also observed that the positive impact of recent GST reductions appears to be waning, potentially failing to fully counter the negative demand effects stemming from the tariff regime. The report concluded that businesses remain concerned about an increasingly competitive landscape, including pressure from international firms.
