India’s Manufacturing Sector Hits 17-Year High Amid Strong Domestic Demand

India’s manufacturing sector demonstrated remarkable resilience in August 2025, registering its fastest growth in over 17 years. According to the HSBC India Manufacturing Purchasing Managers’ Index (PMI), the index climbed to 59.3 in August, up from 59.1 in July, signaling a historic acceleration in operating conditions. The surge reflects a combination of robust domestic demand, rising production efficiencies, and a cautious yet sustained export performance despite global trade pressures.

India’s manufacturing PMI hit another new high in August, driven by a rapid expansion in production | LiveMint

Domestic Production and Order Growth Drive Momentum

The August data revealed that production volumes in India’s factories expanded sharply, contributing significantly to the overall PMI increase. This growth was supported by a broad-based rise in domestic demand, as companies across multiple sectors reported stronger orders. Intermediate goods experienced the fastest production gains, followed by capital and consumer goods, highlighting the widespread nature of the manufacturing revival.

New orders rose at the fastest pace in nearly five years, with companies crediting improved marketing strategies and persistent consumer demand for sustaining growth. Businesses continued to optimize their operations to meet this surge in demand, demonstrating improved coordination between production and supply chains. These trends indicate a robust confidence in the domestic market, which is playing a crucial role in cushioning the sector against global uncertainties.

Exports and Global Trade Challenges

Despite these gains, the manufacturing sector faces challenges on the international front. A 50% tariff imposed by the United States on certain Indian exports affected the pace of new foreign orders. Although export growth slowed to the weakest in five months, it remained historically strong, with firms reporting steady demand from clients across Asia, Europe, the Middle East, and the United States.

HSBC’s chief India economist, Pranjul Bhandari, noted that while export demand may experience some moderation due to these tariffs, the strength of domestic orders provides an effective buffer. The Indian manufacturing sector thus continues to display resilience even as it navigates increasing global trade tensions.

Employment, Inventory, and Price Trends

Employment in the manufacturing sector continued to rise in August, marking the 18th consecutive month of job creation. Although the pace of hiring slowed slightly compared to previous months, it remains substantial, indicating sustained confidence among manufacturers. Companies also increased their purchasing activity to rebuild inventories, reflecting expectations of continued demand. Finished goods stocks grew for the first time in nine months, further suggesting that businesses are preparing for a steady demand environment.

Rising input costs, particularly in raw materials such as steel, leather, bearings, and electronic components, put some pressure on production margins. Manufacturers responded by increasing selling prices, leveraging strong demand to maintain profitability. Supply chains, meanwhile, showed signs of easing, with average lead times shortening compared to July.

Economic Context and Strategic Implications

The manufacturing resurgence is part of a broader economic picture in India. The country’s GDP grew 7.8% year-on-year in Q1 FY26, with manufacturing contributing 7.7% growth. Government expenditure, coupled with strong private sector activity, played a significant role in maintaining momentum. Additionally, India’s private-sector composite PMI, which covers both manufacturing and services, surged to a record 65.2 in August, underscoring the widespread strength of economic activity.

This performance stands in contrast to many other Asian economies, where factory activity has slowed. Analysts view India’s growth as a signal of increasing competitiveness in global manufacturing. However, the sector must remain vigilant in the face of ongoing U.S.-India trade tensions, which could pose challenges for export-oriented industries.

Conclusion

India’s manufacturing sector is demonstrating a remarkable blend of strength and resilience, driven primarily by domestic demand and efficient production management. While global trade pressures, particularly U.S. tariffs, may pose challenges for exports, strong domestic orders and rising employment suggest the sector is well-positioned to sustain growth. The record PMI levels and robust economic backdrop signal an optimistic outlook for India’s manufacturing industry, highlighting its growing significance on the global stage.

(Sources: LiveMint, OpIndia, BusinessLine)