India’s manufacturing activity moderated in May 2025, with the HSBC India Manufacturing Purchasing Managers' Index (PMI) falling to 57.6, down from 58.2 in April. This marked a three-month low, as per data released from a private sector survey on June 2. While this indicates a slight softening in the pace of growth, the PMI remains firmly in expansionary territory — any reading above 50 signals growth.

According to HSBC India’s Chief Economist Pranjul Bhandari, the May reading still reflects robust momentum, though growth in output and new orders eased compared to the previous month. Notably, this marks the first dip in the PMI since former US President Donald Trump’s reciprocal tariff policies, which significantly impacted global trade dynamics in the last decade.

Sector Performance Still Positive Amid Global Headwinds

Despite the decline, India’s manufacturing sector continues to grow at a healthy pace. The May PMI figure of 57.6, while lower than the preliminary estimate of 58.3, is reflective of steady business confidence and production activity.

The easing momentum is seen as part of a broader global trend, where rising input costs and geopolitical concerns, including trade tensions and supply chain bottlenecks, are creating pressures. Yet Indian manufacturers remain optimistic, aided by a stable policy environment and continued domestic demand.

India’s Services Sector Expected to Outperform

While the manufacturing data showed a mild slowdown, India’s services sector is expected to post strong performance. Early indicators suggest that the Services PMI, set to be released on June 4, is likely to reach a 14-month high, reflecting resilience in consumer-facing sectors, IT services, and financial activity.

This dichotomy reflects a diversified economic momentum, with manufacturing slightly cooling off while services gain strength. Analysts point out that this balance may help maintain macro-stability in India amid external uncertainties.

Strong GDP Growth Supports Broader Economic Stability

India’s economy grew by a solid 7.4% in the January-March quarter of FY2024-25, reaching a four-quarter high. This performance lifted India’s overall GDP growth for FY2024-25 to 6.5%, aligning precisely with the Reserve Bank of India’s (RBI) projected target.

The Monetary Council’s poll of 20 economists had placed the median growth estimate at 6.3%, suggesting India slightly exceeded expectations. The central bank’s proactive policies, along with strong consumption and investment trends, are credited for maintaining this growth trajectory.

What Does a Lower PMI Really Mean?

Although the headline figure dropped, it’s important to interpret the PMI in context. A reading of 57.6 still indicates expansion, just at a slower pace than before. It’s not a signal of contraction. Rather, it suggests that the rapid momentum seen in previous months is stabilising.

New export orders, input purchases, and factory employment continued to rise in May, albeit at a more tempered pace. Some manufacturers reported supply-side constraints and price pressures, but overall business sentiment remained high.

Role of RBI and Future Outlook

With inflation under control and monetary policy stable, the RBI has space to maintain its growth-friendly interest rate stance. The latest PMI and GDP figures support RBI’s cautious optimism about India’s economy in FY2025-26.

As global uncertainty persists — especially with geopolitical tensions and a looming US recession — India’s domestic market strength will be key to sustaining manufacturing momentum.

Outlook for June and Beyond

Looking ahead, analysts expect a gradual pickup in manufacturing activity, supported by easing supply chains, government infrastructure investments, and improved business sentiment. The services sector’s expected strong showing may also lift overall composite PMI figures in coming months.

As India pushes forward on its ‘Make in India’ and Production-Linked Incentive (PLI) schemes, the medium-term outlook for the manufacturing sector remains positive. Continued focus on exports, logistics reforms, and upskilling of labour could further strengthen India’s competitiveness.

Conclusion

While the May 2025 PMI data marks a small step back, the overall narrative for India’s economy remains broadly optimistic. The manufacturing sector is still expanding, just not at the breakneck pace of earlier months. With GDP growth matching RBI’s targets, and services poised for a strong performance, India’s economic fundamentals remain intact.

The country continues to stand out as a bright spot among major global economies, maintaining its path of resilient and inclusive growth despite headwinds. The data reflects healthy macroeconomic stability, and with smart policy execution, India is on course to deepen its role as a global manufacturing and services hub.

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