India’s Factory Growth Slows Under U.S. Tariff Pressure

India’s manufacturing sector posted a nine-month low in growth on Monday, attributed largely to downward pressure on demand caused by U.S. tariffs.

Monday’s report was a major collapse from solid growth of 8.2 percent in the previous quarter down to 0.4 percent in October, coming in well below economist estimates of 3.1 percent. Manufacturing output was down from 4.8 percent in September to 1.8 percent in October, with comparable drops in mining and energy.

The October numbers were particularly disappointing because the Indian government just implemented a reduction in the Goods and Services Tax (GST) that was intended to boost domestic consumption and offset the effect of U.S. tariffs.

On the bright side, government income from the new tax system was up slightly over the same period in 2024, which should address criticism that the lower tax rates would deprive the government of tax revenue. The consumption boost from lower taxes appears to have been enough to keep tax revenue steady, but not quite enough to balance the reduced demand for exports under higher tariffs.

“India’s final November PMI (Purchasing Managers’ Index) confirmed that U.S. tariffs caused the manufacturing expansion to slow. The new export orders PMI fell to a 13-month low,” noted Pranjul Bhandari, the chief India economist for HSBC Bank.

“Business confidence, as indicated by expectations for future output, showed a big fall in November, potentially reflecting increasing concerns about the impact of tariffs,” he said.

“The boost from the cuts in goods and services tax (GST) may be fading and it might be insufficient to offset the tariff headwind to demand,” Bhandari predicted.

Other analysts praised the “resilience” of India’s manufacturing sector and said business confidence was holding fairly steady, especially if next quarter’s Gross Domestic Product (GDP) growth is not reduced by too much. Most economists expect India’s GDP to recover early next year and grow by at least seven percent in 2026.

Indian Commerce Secretary Rajesh Agarwal said on Friday that India hopes to sign the first part of a bilateral trade agreement with the United States before the end of 2025. He said a “more immediate” framework trade deal to reduce tariffs could be finished before the full bilateral agreement — which could completely eliminate tariffs from both countries, potentially doubling bilateral trade — was finalized.

“We are close, we have tried to iron out most of the issues. Now it is only a matter of time when this decision has to be taken, that is, when the two countries have to find the right landing zone to announce it,” Agarwal said.