India’s private sector growth slowed sharply in December, expanding at its weakest pace in ten months, according to flash PMI data released on Tuesday that highlighted slower new orders, softer demand and stalled hiring. The composite PMI index dipped to 58.9 in December from 59.7 in November, remaining above the 50 threshold that separates expansion from contraction but slowing markedly as firms reported a loss of momentum. Both manufacturing and services sectors contributed to the deceleration, suggesting the broader private economy is feeling pressure from subdued domestic demand and mixed export signals. Employment levels stagnated, as companies opted to retain existing staff rather than expand amid uncertain economic conditions. Despite resilient export demand from key markets such as the U.S., UK and Middle East, domestic demand components weakened — a factor that could temper near-term growth prospects.

Manufacturing PMI fell to 55.7, down from 56.6, reflecting slower production and new orders, while services PMI eased to 59.1 from 59.8 as activity softened in traditional growth engines like business services and consumer-facing segments. Firms indicated that cost pressures and capacity concerns were contributing to a more cautious outlook, even as technology and specialised manufacturing maintained moderate resilience. Business confidence dipped to its lowest level in several months, underscoring growing wariness among Indian firms as the year drew to a close. Some analysts attributed the weaker growth partly to tight financial conditions in segments of the credit markets, which may have dampened investment appetite.

Despite the slowdown, India’s longer-term growth story remains intact, supported by structural advantages such as a young workforce, strong consumption trends and ongoing digital adoption that continue to attract investment. Export strengths in categories such as IT services and customised manufacturing also provide cushions against purely domestic slowdowns. Policymakers may respond with targeted measures to stimulate investment and support small business growth, particularly if key economic indicators continue to show softness.

Investors will be watching how India’s central bank and finance ministry respond in early 2026, balancing inflation control with growth stimulus. Global capital flows into emerging markets like India often hinge on such macro responses, especially as interest rate and trade dynamics remain volatile. Continued foreign investor interest could hinge on policy clarity and structural reforms that enhance competitiveness.

Overall, while India’s private sector remains in expansion territory, the clear loss of pace in December suggests that domestic economic engines may cool in early 2026 without supportive policy or stronger external demand. Firms and investors alike will be watching upcoming inflation and trade data for further insight into the trajectory of growth.

Source: Reuters