India’s manufacturing sector showed modest signs of recovery in January, with factory activity inching higher as domestic demand improved, but the rebound was too mild to restore business confidence or trigger a meaningful pickup in hiring, according to a private survey released on Monday.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 55.4 in January from December’s two-year low of 55.0. While the reading remained firmly above the 50-mark that separates expansion from contraction, it fell short of the preliminary estimate of 56.8, pointing to a slower-than-expected improvement in operating conditions.
India’s PMI has stayed in expansionary territory since July 2021, underscoring the resilience of the manufacturing sector through successive global shocks. Still, the January data suggest that momentum remains uneven and fragile.
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Factory output strengthened from December, when growth had eased to a 38-month low, reflecting a modest revival in production schedules. New orders also regained some of the ground lost in the previous month, indicating that demand conditions have stabilized after a soft patch at the end of last year.
However, the composition of demand highlights an important imbalance. Export orders improved only marginally from December and remained weak overall, signaling that the recovery was largely driven by domestic consumption rather than overseas markets. Manufacturers reported receiving orders from clients across Asia, Australia, Canada, Europe, and the Middle East, but the pace of export growth remained subdued, mirroring a challenging global trade environment marked by slowing growth, tighter financial conditions, and lingering geopolitical uncertainty.
The weak export performance contrasts with India’s broader ambitions to expand its manufacturing footprint globally and deepen its integration into supply chains, shifting away from China. It also comes as exporters face rising uncertainty from U.S. trade policies under President Donald Trump, which have weighed on sentiment and planning across several sectors.
Despite the improvement in output and new orders, the survey showed little evidence that manufacturers are confident enough to expand their workforce aggressively. Employment growth rose to a three-month high, but the pace of hiring remained modest. Firms reported adjusting staffing levels only cautiously to meet higher workloads, suggesting they remain wary about the durability of the demand recovery.
That caution was reflected more starkly in business sentiment. Overall confidence about future output slipped to its lowest level in three-and-a-half years. Only 15% of surveyed manufacturers said they expected production to increase over the next 12 months, while the majority anticipated no change. Such subdued optimism points to lingering concerns over global demand, input costs, and policy uncertainty, both at home and abroad.
Inflation dynamics within the sector were mixed. Input cost inflation accelerated to a four-month high, with companies citing higher prices for chemicals, copper, iron, steel, and transportation. These increases reflect both commodity market pressures and elevated logistics costs, which continue to squeeze margins.
Yet manufacturers appear reluctant or unable to pass those higher costs on to customers. Output price inflation fell to its lowest level in nearly two years, indicating weak pricing power despite firmer demand. This suggests intense competition and price sensitivity in the market, particularly as consumers remain cautious and export markets stay soft.
However, the January PMI paints a picture of a manufacturing sector that is still expanding but struggling to build convincing momentum. Domestic demand is providing a cushion, but weak exports, muted hiring, and falling confidence underline the challenges facing manufacturers as they navigate an uncertain global environment and rising cost pressures.
Analysts expect the data to reinforce the importance of sustaining domestic demand while addressing structural bottlenecks that continue to limit India’s manufacturing competitiveness and export growth.