India’s factory engine roars as costs ease, demand soars

India’s factory activity accelerated in October, lifted by steady domestic demand that outweighed a softer patch for exports and a worsening external trade backdrop.

The HSBC India Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to 59.2 from 57.7 in September, well above the 50 mark that separates expansion from contraction and stronger than an earlier flash print of 58.4.

Output growth quickened to match the fastest pace in about five years, equal to August’s clip, as companies cited new clients, efficiency gains and technology investments.

The October survey showed the same split that has defined much of this year: resilient home demand, slower foreign orders.

New export business expanded, but at the weakest rate in ten months. Input cost inflation eased to an eight-month low, yet output prices stayed sticky at their highest in nearly 12 years for a second month, with companies passing on higher freight and labour costs.

Hiring rose for a 20th straight month, though the pace of job creation was only moderate.

“Robust end-demand fueled expansions in output, new orders, and job creation,” HSBC’s chief India economist Pranjul Bhandari said, adding that firms still lifted selling prices as they absorbed cost pressures.

Business optimism cooled from a seven-month high, but remained solid and was supported by expectations around GST reforms and firm demand.

The firmer PMI lands as India’s policy mix tries to nurture a manufacturing upshift without stoking inflation. Price pressures in services cooled through late October’s flash readings even as overall private-sector growth eased to a five-month low, suggesting the expansion is broad but no longer accelerating in a straight line.

The flash composite PMI dipped to 59.9 in October from 61.0 in September, with manufacturing rebounding and services slowing.

Global conditions are less friendly. Factory gauges across big manufacturing economies show strain from weaker US demand and higher trade barriers.

A Reuters cross-country read on Monday flagged Asia’s order books softening as fresh US tariffs ripple through value chains. US manufacturing itself remained mired in contraction in October. That backdrop matters for India’s bellwether exporters in textiles, gems and jewelry, chemicals, electronics and auto components.

Tariffs are the swing factor. Since August, Washington has layered an additional 25% levy on Indian goods on top of earlier measures, taking the headline tariff rate on many shipments up to 50%.

The escalation was tied to India’s purchases of Russian oil and came after trade talks stalled. Exporter groups estimate more than half of India’s goods sold into the US are exposed, and Moody’s has warned of a growth drag if the dispute persists.

New Delhi is working on relief for affected sectors, while markets have looked for signs of a negotiated rollback.

The US Senate last week voted 52–48 to terminate President Trump’s separate 50% tariff on Brazil, a symbolic move that nonetheless shows bipartisan fatigue with blanket duties; House leaders have parked tariff-overturn votes until 2026.

For now, the PMI detail still reads constructive as firms reported faster output, rising backlogs and incremental hiring, a mix consistent with an economy growing above trend as the festival quarter peaks.

Input costs cooled, which should help margins if selling price strength holds. Supplier delivery times improved from recent months in some sub-sectors, helping production planning even as import frictions remain a risk.

The survey compiler noted that domestic orders, efficiency improvements and new client acquisition were the primary engines of October’s better print.

The survey showed output charge inflation running hot even as inputs ease, implying producers are still comfortable testing the ceiling on pass-through. If that persists into November and December, it could complicate disinflation, though the most recent inflation run-rate was within the Reserve Bank of India’s 2–6% band ahead of the 1 October policy where the repo rate was held at 5.50%.

October’s slower export expansion lines up with global PMIs softening and the tariff overhang; unless there is progress on the US front, export growth is unlikely to lead the cycle.