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Winners Amid Slowdown
Articles- Oct 03,25
India’s manufacturing sector closed September on a slower, yet resilient note. The HSBC Flash India Composite Output Index eased to 61.9 from 63.2 in August—still the second-best in more than two years and well above the neutral 50.0. Manufacturing PMI moderated to 58.5, services to 61.6, and the Manufacturing Output Index to 62.7.
India’s manufacturing sector closed September on a slower, yet resilient note. The HSBC Flash India Composite Output Index eased to 61.9 from 63.2 in August—still the second-best in more than two years and well above the neutral 50.0. Manufacturing PMI moderated to 58.5, services to 61.6, and the Manufacturing Output Index to 62.7. The drag came from exports: new orders grew at their weakest pace in six months, with services exports at their joint-lowest since March. Domestic demand, however, remained buoyant, aided by recent GST rate cuts.
External challenges weighed heavily. The 50 per cent US tariff on Indian shipments slowed export momentum after front-loading earlier this year. Input costs rose across commodities—cotton, electronic components, oil, steel, vegetables, and wood—alongside wage bills. Yet, overall expense growth softened. The pricing gap was stark: manufacturers raised factory gate charges at the fastest pace in 12.5 years, while services kept inflation in check. Employment rose modestly, though hiring slowed as most firms reported adequate staffing.
The smartphone sector exposed the perils of selective data reading. The Global Trade Research Initiative (GTRI) reported a 58 per cent fall in US-bound smartphone exports from $ 2.29 billion in May to $ 964.8 million in August. In contrast, the India Cellular & Electronics Association (ICEA) highlighted robust growth: August exports rose 39 per cent year-on-year (YoY) to $ 1.53 billion, with US shipments surging 148 per cent YoY to $ 965 million. In April–August FY26 alone, exports to the US touched $ 8.43 billion, a 193 per cent jump year-on-year and already nearly 80 per cent of FY25’s total. Even with seasonal dips in August–September due to model launches and plant retrofits, India’s electronics manufacturing remains firmly on the growth path.
Macro fundamentals continue to support this resilience. S&P Global projects 6.5 per cent GDP growth in FY26, after a 7.8 per cent surprise in Q1, driven by government investment, steady domestic demand, and a benign monsoon. Inflation is projected at 3.2 per cent, opening room for a possible 25 bps policy rate cut by the RBI.
Tax reforms are providing critical liquidity. GST 2.0’s 90 per cent upfront refund of accumulated credits is easing working capital pressures where inputs are taxed at 18 per cent and outputs at 5 per cent. Extending refunds to input services and capital goods, as global VAT systems allow, would fully unlock competitiveness. Faster refunds, powered by GSTN automation, could compress processing timelines from months to days, cutting borrowing costs and fuelling new investment.
Risks persist. PMI moderation, slowing export orders, and China’s expected 4 per cent growth in 2025–26 all pose headwinds. Yet, India’s policy mix—GST rationalisation, income-tax relief, public capex, and electronics supply chain deepening—offers a solid buffer. The long-term story stays intact. With 6.5 per cent growth, inflation within target, and reforms unclogging liquidity, Indian manufacturing is positioned to maintain expansionary momentum. The September cool-off is a signal to accelerate reforms, not a reason to doubt the trajectory.
This edition of Smart Manufacturing & Enterprises features "India’s Top 100 Engineering Companies" that emerged as winners in FY25, delivering outstanding performance despite challenging market conditions. Do share your feedback on the edition.
India’s manufacturing sector
HSBC Flash India Composite Output Index
cotton
electronic components
oil
steel
vegetables
and wood
Global Trade Research Initiative
S&P Global projects
Smart Manufacturing & Enterprises
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