India’s manufacturing growth cools in September as costs surge, US tariffs add strain

New Delhi: India’s manufacturing engine lost momentum in September, cooling from a 17-year high the previous month and expanding at its slowest pace in four months, according to a private survey released Wednesday. Meanwhile, factory prices surged at their fastest rate in nearly 12 years.

The contrast points to intensifying cost pressures, with manufacturers passing on rising input costs to consumers. The slowdown also reflects early strains from Washington’s newly imposed 50% tariffs on Indian goods, a move that could challenge the resilience of Asia’s third-largest economy, which has outpaced all other major economies this year.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, eased to 57.7 in September from 59.3 in August and 59.1 in July. That compares with 58.4 in June, 57.6 in May, and 58.2 in April.

Despite the pullback, a reading above 50 still signals expansion.

“New orders, output, and input buying all rose at the slowest rates since May, while job creation retreated to a one-year low,” the survey said.

“Still, companies were strongly confident regarding the outlook for production, with changes in GST (goods and services tax) rates boosting optimism,” it added. The manufacturing PMI is based on monthly surveys of 400 manufacturers.

“The September headline index softened, but it remained well above the long-term average,” said Pranjul Bhandari, chief India economist at HSBC.

“New export orders increased at a faster rate in September, indicating demand outside of the US might be offsetting any decline in demand from the US as a result of tariffs,” she added.

“Business confidence, as indicated by expectations for future output, showed a big jump in September, potentially reflecting optimism about the boost in demand from the cuts in goods and services tax, although US tariffs remain a strong headwind to the economy.”

Upbeat on production

S&P Global indicated in its report that Indian companies continued to signal upbeat forecasts for production in the coming 12 months.

“Moreover, the overall level of confidence rose to a seven-month high. In addition to favourable demand conditions, investment in marketing and better customer relations, panellists identified GST cuts as a tailwind to growth,” the survey said.

“Concurrently, buying levels rose further at the end of the second fiscal quarter. Although the slowest in four months, the rate of expansion was sharp by historical standards,” it added.

However, input costs continued to increase in September with prices of battery, cotton, electronic components, and steel rising during the month, according to the S&P Global survey.

“The overall rate of inflation was solid and the quickest since May, though it remained below its long-run average. Selling charges increased at a sharp pace, and one that was faster than that seen for input costs,” it said.

The US imposed a 25% tariff on nearly all Indian exports effective 6 August, followed by an additional 25% duty in August to punish New Delhi’s purchases of discounted Russian oil.

The US tariffs are gaining traction, generating monthly revenue of roughly $30 billion, with India the hardest hit at a steep 50% duty since late August, SBI Capital Markets said in its latest edition of EcoCapsule, a monthly analysis.

“Yet, uncertainty persists after a US Appeals Court deemed the levies unconstitutional,” it said. “The administration has escalated the case to the Supreme Court, leaving three broad outcomes: tariffs maintained, renegotiated, or scrapped. Until clarity emerges, trade policy volatility remains elevated, with key pressure points in autos, electronics, and textiles.”