Impact of Trump Tariffs on India’s Manufacturing Sector: PMI Declines to Nine-Month Low in November
Manufacturing activity in India has reached a nine-month low, as indicated by the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI). The PMI fell to 56.6 in November from 59.2 in October, reflecting a slowdown attributed to reduced sales growth and challenging market conditions. This decline comes amid ongoing trade tensions, particularly the impact of 50% tariffs imposed by the U.S. on Indian goods, which have affected the manufacturing sector’s expansion.
Decline in Manufacturing Activity
The HSBC India Manufacturing PMI, which is based on responses from around 400 manufacturing purchasing managers, indicates that the manufacturing sector is facing significant challenges. The PMI’s drop to 56.6 marks the slowest improvement in operating conditions since February. A reading above 50 signifies expansion, while below 50 indicates contraction. According to Pranjul Bhandari, Chief India Economist at HSBC, the tariffs imposed by the U.S. have directly contributed to this slowdown in manufacturing growth.
Despite the adverse effects of tariffs, the report noted that international sales trends remained somewhat positive, with increased sales to clients in regions such as Africa, Asia, Europe, and the Middle East. However, the overall growth momentum has weakened, with new export orders rising at their slowest rate in over a year. The export orders PMI has dropped to its lowest level in 13 months, raising concerns about future output expectations, which have significantly declined due to tariff-related worries.
Trade Negotiations and Future Outlook
In light of these challenges, Indian Commerce Secretary Rajesh Agrawal expressed optimism about finalizing a framework trade agreement with the U.S. by the end of the year. This agreement could potentially alleviate some of the tariff-related issues faced by Indian exporters. Ongoing negotiations between the two nations aim to address these challenges, although initial expectations of concluding a bilateral trade deal by fall 2025 have been complicated by the tariffs.
Agrawal acknowledged that while the Bilateral Trade Agreement (BTA) requires more time to finalize, India remains engaged in extensive discussions with the U.S. to tackle mutual tariff issues. The impact of recent Goods and Services Tax (GST) reductions appears to be waning, failing to offset the negative effects of tariffs on demand, as noted by Bhandari.
Inflation and Employment Trends
November also saw a decrease in inflation levels, with input costs and selling prices rising at their slowest rates in nine and eight months, respectively. Indian manufacturing firms have adjusted their recruitment and procurement strategies in response to the reduced growth in new orders. Despite these adjustments, job creation has continued for 21 consecutive months, although at the most modest rate during this period.
Looking ahead, businesses maintain optimistic projections for output over the next year, but confidence levels have dipped to their lowest in approximately three and a half years. Concerns about competition from international firms have contributed to these downgraded forecasts, highlighting the challenges that lie ahead for the Indian manufacturing sector as it navigates a complex economic landscape.
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