India's Manufacturing PMI Hits Two-Year Low in December Amidst Slowing Orders
Manufacturing PMI drops to 2-year low in December, signaling easing new orders and economic slowdown.
Photo by NIloy Tanvirul
India's manufacturing sector experienced a slowdown in December, with the Purchasing Managers' Index (PMI) falling to a two-year low of 54.9. This decline was primarily attributed to an easing in new orders, indicating a moderation in demand. While the PMI still remains above the 50-point mark (which separates expansion from contraction), the downward trend suggests a cooling off from previous robust growth.
The report also highlighted rising input costs for businesses, even as output prices saw a marginal increase. This data is crucial for understanding the health of the manufacturing sector, which is a key contributor to India's GDP and employment, and provides insights for monetary policy decisions by the RBI.
Key Facts
Manufacturing PMI for December: 54.9
PMI at 2-year low
Reason for decline: Easing new orders
Input costs rose, output prices fell marginally
UPSC Exam Angles
Understanding the methodology and significance of PMI as an economic indicator.
Analyzing the health and challenges of India's manufacturing sector.
Implications of economic slowdowns on GDP, employment, and investment.
Role of RBI and monetary policy in responding to economic data like PMI.
Relationship between input costs, output prices, and inflation.
Visual Insights
Key Indicators of India's Manufacturing Sector (December 2025)
A snapshot of crucial economic metrics related to India's manufacturing sector as of December 2025, providing context to the recent PMI data.
- Manufacturing PMI
- 54.9-1.6 points (from Dec 2024)
- New Orders Index
- ModeratingEasing
- Input Costs
- RisingIncreasing
- Output Prices
- Marginal IncreaseSlightly up
Indicates expansion but at a slower pace; a two-year low. Crucial for gauging business confidence and economic momentum.
Primary driver of the overall PMI decline, suggesting a moderation in demand for manufactured goods.
Highlights inflationary pressures faced by manufacturers, impacting profitability and potentially consumer prices.
Businesses are passing on some, but not all, of the increased input costs to consumers, indicating demand sensitivity.
More Information
Background
Latest Developments
Practice Questions (MCQs)
1. With reference to the Purchasing Managers' Index (PMI) in India, consider the following statements: 1. A PMI reading above 50 indicates an expansion in economic activity compared to the previous month. 2. The PMI for manufacturing is compiled by the Ministry of Statistics and Programme Implementation. 3. It is considered a leading economic indicator as it provides insights into future economic conditions. Which of the statements given above is/are correct?
- A.1 only
- B.1 and 3 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: B
Statement 1 is correct: A PMI reading above 50 indicates expansion, while below 50 indicates contraction. A reading of 50 indicates no change. Statement 2 is incorrect: The PMI in India is compiled and published by S&P Global (formerly IHS Markit), not by the Ministry of Statistics and Programme Implementation. The Ministry of Statistics and Programme Implementation compiles the Index of Industrial Production (IIP). Statement 3 is correct: PMI is a leading indicator as it reflects business sentiment and activity before official statistics are released, offering insights into future economic trends.
2. In the context of India's manufacturing sector and recent economic trends, which of the following statements is/are correct? 1. A sustained decline in new orders, as indicated by PMI, typically suggests a moderation in consumer demand and business investment. 2. Rising input costs coupled with only marginal increases in output prices can lead to higher profit margins for businesses. 3. The Reserve Bank of India (RBI) primarily uses the PMI data to directly set the repo rate without considering other inflation or growth metrics. Select the correct answer using the code given below:
- A.1 only
- B.1 and 2 only
- C.2 and 3 only
- D.1, 2 and 3
Show Answer
Answer: A
Statement 1 is correct: A decline in new orders indicates reduced demand from consumers and businesses, which can lead to lower production and investment. Statement 2 is incorrect: Rising input costs (raw materials, labor, etc.) without a proportional increase in output prices (what businesses charge for their products) will squeeze profit margins, not increase them. Businesses absorb higher costs or pass them on partially, impacting profitability. Statement 3 is incorrect: While PMI data is crucial for the RBI to assess economic health and inflationary pressures, the RBI's Monetary Policy Committee (MPC) considers a wide array of economic indicators, including CPI inflation, WPI, GDP growth, fiscal position, global cues, and liquidity conditions, before making decisions on policy rates. It does not solely rely on PMI data.
3. Consider the following statements regarding the manufacturing sector in India: 1. The 'Make in India' initiative aims to boost the manufacturing sector's share in the country's GDP to 25% by 2025. 2. The Production Linked Incentive (PLI) schemes are designed to attract foreign investment and encourage domestic manufacturing in specific sectors. 3. India's manufacturing sector has consistently contributed over 30% to the country's Gross Value Added (GVA) in the last decade. Which of the statements given above is/are correct?
- A.1 only
- B.2 only
- C.1 and 2 only
- D.2 and 3 only
Show Answer
Answer: B
Statement 1 is incorrect: The 'Make in India' initiative, launched in 2014, initially aimed to increase the manufacturing sector's share of GDP to 25% by 2022. This target was not met, and while the ambition remains, the specific 2025 target for 25% is not the current official stated goal for the original initiative. Statement 2 is correct: PLI schemes offer incentives to companies for incremental sales from products manufactured in domestic units, thereby attracting investments in manufacturing and boosting exports. They cover various sectors like automobiles, electronics, pharmaceuticals, etc. Statement 3 is incorrect: The manufacturing sector's share in India's GVA has hovered around 15-18% in the last decade, not consistently over 30%. The services sector is the largest contributor to India's GVA.