Mint Explainer | Is India’s manufacturing engine slowing? There are signals of strength and signs of cooling

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, continues to signal strength. The index climbed to 59.2 in October from 57.7 in September, broadly matching its solid run through August (59.3), July (59.1), and earlier months. With anything above 50 indicating expansion, the data suggests factory activity is growing at a healthy pace.

However, the survey also points to subtle signs of cooling. Export orders rose at the slowest pace in 10 months, reflecting softer overseas demand, an emerging pressure point for India’s export-oriented manufacturers.

A starker contrast comes from the country’s core infrastructure sector, a measure of industrial output. It recorded zero growth in October, the weakest in 14 months, extending a slowdown from 3.3% annually in September and 6.5% in August (revised from 6.3%). The sector expanded 2.4% in September 2024.

The eight industries that make up the core index—coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity—account for more than 40% of India’s industrial production. Their performance forms the foundation of the broader manufacturing ecosystem.

Mint unpacks what the evolving data signals, the sectors most exposed to weakening export demand, and the pockets of resilience that continue to support India’s industrial momentum.

What’s driving the manufacturing slowdown?

October’s data shows clear stress points in the heart of India’s industrial supply chain. Output contracted in four key sectors: coal, crude oil, natural gas, and electricity. At the same time, steel production growth slowed, indicating waning momentum after months of robust expansion.

These industries form the backbone of India’s heavy manufacturing ecosystem and critically, many of them—refinery products, steel, crude oil and coal—supply segments that feature prominently in India’s export basket. The softness here suggests not only domestic industrial cooling but also potential pressure on outbound shipments.

Still, not all components faltered. Cement, fertilisers and refinery products saw month-on-month improvements, signalling pockets of resilience even as the broader index flatlined.

Why does the PMI tell a different story?

The contrast with private survey data could not be sharper. The Manufacturing PMI showed the sector regaining momentum in October, rising from levels in September. That bounce followed high activity in August and July and remained well above the 50-mark separating expansion from contraction.

According to the survey, the pickup was driven by a sharper rise in new orders, stronger output, and an upswing in purchasing activity. Manufacturers reported a near-record build-up in input inventories, encouraged by GST relief measures, gains in productivity, and increased investment in technology.

But even this upbeat survey carried a caveat: external sales grew at the slowest pace in 10 months, hinting that global demand remains soft and could weigh on export-heavy industries in the months ahead.

Why are sentiments and output moving in different directions?

The growing divergence between the indicators rekindles an old debate: are businesses anticipating growth that hasn’t yet materialised on the ground?

On one side, hard data from India’s core sectors, which measure real output in upstream industries such as coal, steel, electricity and crude oil, point to a slowdown. These industries form the backbone of manufacturing, so softer numbers here often hint at weakening production pipelines and cooling investment momentum.

On the other side stand the PMI readings, which rely on monthly survey responses from purchasing managers. Unlike physical output data, PMI captures sentiment: expectations around demand, hiring, inventories and future production. It often turns before official statistics, reflecting early signals of expansion or stress, based on what firms anticipate, not just what they are currently delivering.

What to watch next?

Economists say the coming months will reveal whether October’s flat core growth is a temporary blip or the front edge of a more sustained slowdown. Much will depend on the export outlook amid sluggish global demand, the pace of infrastructure and construction activity during the post-monsoon quarter, and whether the surge in new orders captured in the PMI translates into hard production data.

“The core sector performance was disappointing as the energy sector, including power and coal, was in negative territory. Thermal production is down, reflecting the late withdrawal of the monsoon," said Madan Sabnavis, chief economist at the Bank of Baroda. “The government push on capex is reflected in steel in particular and partly in cement. This has compensated for negative growth in the energy segment. We can expect IIP growth of 1.5-2% this month, assuming consumer goods keep the momentum going."