India Manufacturing Output & PMI Tracker: Trends for Foreign Manufacturers

Why Manufacturing PMI Matters for Foreign Investment Decisions

The Purchasing Managers' Index (PMI) is the single most watched leading indicator for manufacturing health in any economy. For foreign manufacturers evaluating FDI in India, the PMI provides a real-time pulse on factory output, new order flows, employment trends, input costs, and supplier delivery times — data that lags by months in official government statistics.

India's HSBC Manufacturing PMI, compiled by S&P Global, has remained above the 50.0 expansion threshold for over 42 consecutive months as of February 2026 — the longest sustained expansion streak in India's PMI history. This is not a marginal expansion: readings have consistently been in the 55-59 range, signalling robust growth across nearly every manufacturing sub-sector.

For a foreign company considering setting up a subsidiary or expanding an existing manufacturing facility in India, this data tells a clear story: India's factory floor is operating at sustained high capacity, domestic demand is strong, and the ecosystem for manufacturing is expanding.

PMI Trend Analysis: 2025-2026

Let us examine the month-by-month PMI trajectory to understand the momentum, seasonal patterns, and inflection points that matter for investment timing.

2025 Monthly PMI Data

2026 Data (Year-to-Date)

The data reveals a clear pattern: India's manufacturing PMI peaked at 59.1 in July 2025 — the strongest reading in 17 years — before moderating through year-end. The February 2026 rebound to 56.9 signals that the moderation was temporary, with domestic demand reasserting itself as the primary growth driver. Export order growth has slowed to a 17-month low, but domestic demand growth remains strong enough to sustain overall expansion.

Index of Industrial Production (IIP): The Official Output Data

While PMI is a forward-looking survey-based indicator, the Index of Industrial Production (IIP) published by India's Ministry of Statistics provides the official, backward-looking output data that validates PMI trends.

Recent IIP Performance

India's industrial production growth accelerated to a two-year high of 7.8% year-on-year in December 2025, with the manufacturing sector specifically growing at 8.1%. However, January 2026 saw a deceleration to 4.8%, down from 5.8% in January 2025.

Sector-Wise IIP Breakdown (January 2026)

The standout message for foreign manufacturers: India's heavy industry and infrastructure sectors are booming (13%+ growth), while consumer non-durables show weakness. This creates immediate opportunities in steel, auto components, construction materials, and capital goods — sectors where foreign technology and investment are actively sought.

Manufacturing FDI Flows: Follow the Money

PMI and IIP data become actionable when cross-referenced with actual investment flows. Foreign manufacturers are not just watching India's numbers — they are allocating capital.

FDI in Manufacturing: The Acceleration

In FY 2024-25, manufacturing FDI rose 18% year-on-year to USD 19.04 billion, up from USD 16.12 billion in FY 2023-24. Total FDI inflows reached a provisional USD 81.04 billion in FY 2024-25, marking a 14% increase over the previous year. Over the past decade, FDI in India's manufacturing sector has reached INR 14,34,224 crore (approximately USD 165.1 billion), representing a 69% increase over the decade.

This capital is flowing into specific sectors aligned with government PLI scheme incentives and the broader China-plus-one diversification strategy being pursued by global manufacturers.

Top Sectors Attracting Manufacturing FDI

• Electronics and semiconductors: Mobile phone production has increased 146%, rising from INR 2.13 trillion in FY 2020-21 to INR 5.25 trillion in FY 2024-25. Mobile phone exports have risen approximately eight-fold.
• Automobiles and auto components: PLI budget allocation jumped from INR 346.87 crore to INR 2,818.85 crore in 2025-26
• Pharmaceuticals: India transitioned from a net importer of bulk drugs (INR 1,930 crore deficit in FY 2021-22) to a net exporter (INR 2,280 crore surplus in FY 2024-25)
• Steel and metals: IIP growth of 13.2% in basic metals reflects capacity expansion by foreign and domestic players
• Defence manufacturing: 74% FDI cap sector with active government procurement commitments

PLI Scheme Results: Where Incentives Are Paying Off

The Production Linked Incentive (PLI) scheme — India's flagship industrial policy for attracting manufacturing investment — has delivered tangible results that directly influence foreign manufacturers' site selection decisions.

Aggregate PLI Performance (as of June 2025)

For foreign manufacturers, the PLI scheme is a direct incentive to set up or expand Indian operations. The scheme offers 4-6% of incremental sales as cash incentives over five years, effectively subsidising the cost of establishing manufacturing capacity. Foreign-owned companies are eligible to apply and have been among the largest beneficiaries, particularly in electronics, auto components, and pharmaceuticals.

2025-26 Budget Allocations Signal Continued Support

The Union Budget 2025-26 significantly increased PLI allocations for key sectors:

• Electronics and IT Hardware: INR 5,777 crore to INR 9,000 crore (56% increase)
• Automobiles and Auto Components: INR 346.87 crore to INR 2,818.85 crore (712% increase)
• National Manufacturing Mission: New initiative announced focusing on ease of doing business, workforce development, MSME integration, technology access, and quality manufacturing

Manufacturing GDP Share: The 25% Target

India's manufacturing sector currently contributes approximately 17% of GDP — well below the government's stated target of 25%. The gap between aspiration and reality represents both the challenge and the opportunity for foreign manufacturers.

Current Trajectory

According to Equirus Capital's Industrial Outlook Report, India's manufacturing share of GDP is expected to rise from 13% in FY 2025 to 20% by FY 2030. Manufacturing GVA (Gross Value Added) growth of 7.72% in Q1 and 9.13% in Q2 of FY 2025-26 demonstrates accelerating momentum. The country's real GDP growth is estimated at 6.5% in FY 2025-26, with manufacturing outpacing overall economic growth.

For foreign manufacturers, this trajectory means India's manufacturing base is growing faster than the overall economy — a fundamental indicator that the ecosystem (infrastructure, supply chains, skilled labour, regulatory support) is improving relative to other sectors.

What This Means for Foreign Manufacturers

The gap between 17% current share and 25% target translates to approximately USD 250-350 billion in additional annual manufacturing output needed. This gap cannot be filled by domestic companies alone — it requires foreign technology, capital, and expertise. The government recognises this, which is why FDI norms in manufacturing have been progressively liberalised, with most sectors now allowing 100% FDI under the automatic route.

State-Level Manufacturing Performance

India's manufacturing story is fundamentally a state-level story. The choice of which state to establish operations in can make or break a manufacturing investment.

Top Manufacturing States by Output

• Maharashtra: India's largest manufacturing state, home to the Mumbai-Pune industrial corridor and strong in automotive, chemicals, and pharmaceuticals
• Gujarat: Dominant in chemicals, petrochemicals, and textiles with the Vibrant Gujarat industrial incentive programme
• Tamil Nadu: India's auto manufacturing hub, with 40% of the country's auto component production and the SIPCOT industrial corridor
• Karnataka: Electronics manufacturing cluster around Bengaluru, with aerospace and defence emerging
• Uttar Pradesh: Fastest-growing manufacturing state, leveraging ODOP (One District One Product) and defence corridor

Foreign manufacturers should evaluate state industrial policies, land availability, labour costs, power tariffs, and logistics connectivity when selecting a manufacturing location. The manufacturing cost calculator provides state-by-state cost comparisons.

Employment and Labour Market Trends in Manufacturing

For foreign manufacturers, labour availability and cost are decisive factors. The PMI employment sub-index provides forward-looking signals on manufacturing hiring trends.

Manufacturing Employment Growth

Throughout 2025, the PMI employment sub-index remained above 50 for most months, indicating net hiring across the manufacturing sector. The PLI scheme alone has generated over 12 lakh (1.2 million) direct and indirect jobs, with the electronics sector contributing the largest share. In Tier 2 cities — which are increasingly the preferred locations for new manufacturing plants — job openings rose 42% between September 2024 and February 2025, more than double the growth rate in Tier 1 metros.

Skilled Labour Availability

India graduates approximately 1.5 million engineering students annually, providing a deep pool of technical talent for manufacturing operations. However, the quality varies significantly: the top 15-20% of engineering graduates meet global manufacturing standards without additional training, while the remainder require 3-6 months of on-the-job skill development. Foreign manufacturers should budget for structured training programmes, particularly for advanced manufacturing processes (CNC machining, robotics integration, precision engineering) where the gap between academic curricula and industry requirements is widest.

Labour Cost Advantage

India's average manufacturing wage of USD 150-250 per month for shopfloor workers remains substantially below China (USD 600-900), Vietnam (USD 250-350), and Thailand (USD 350-500). When combined with PLI incentives and competitive land costs in industrial parks, the total cost of manufacturing in India is 20-35% lower than China for most product categories. This cost advantage is the fundamental driver behind the China-plus-one relocation trend that continues to accelerate.

Infrastructure and Logistics Improvements

India's manufacturing revival is being supported by massive infrastructure investment that directly affects factory location decisions and supply chain costs.

Industrial Corridors

The Delhi-Mumbai Industrial Corridor (DMIC) and Chennai-Bengaluru Industrial Corridor (CBIC) are operational with multiple industrial parks accepting tenants. The Amritsar-Kolkata Industrial Corridor and other planned corridors are progressing, with total government investment exceeding INR 3 lakh crore across corridor projects. These corridors offer plug-and-play factory infrastructure, dedicated freight corridors, and integrated logistics parks specifically designed for manufacturing FDI.

Port and Freight Capacity

India's port handling capacity has expanded to over 2,600 MTPA (million tonnes per annum) with Sagarmala programme investments improving port connectivity and reducing turnaround times. The Dedicated Freight Corridor (DFC) — with the Eastern corridor operational and the Western corridor nearing completion — reduces freight transit times by 40-50% and logistics costs by 20-25% for manufacturers shipping goods across India.

Power Supply Reliability

India added over 80 GW of renewable energy capacity in the past five years, with total installed power capacity exceeding 450 GW. For foreign manufacturers, most state industrial parks and SEZs now offer 24x7 power supply with backup arrangements. However, manufacturers in smaller Tier 3 industrial areas should still plan for captive power or renewable energy installations to ensure uninterrupted operations.

Key Risks and Headwinds

The manufacturing data is not uniformly positive. Foreign manufacturers must account for specific headwinds visible in the current data.

Export Order Slowdown

The February 2026 PMI data showed new export orders growing at the weakest pace in 17 months. This reflects softer demand in key export markets (US, EU) and growing trade uncertainties. Manufacturers targeting export-oriented production from India should model conservative export growth scenarios.

Input Cost Pressures

Raw material costs have been rising, with input price inflation persistent through 2025. This affects margins for foreign manufacturers, particularly in sectors where finished goods prices are globally competitive and cannot absorb cost increases.

Consumer Non-Durables Weakness

The IIP contraction of -2.7% in consumer non-durables (January 2026) signals that India's mass-market FMCG sector is under pressure. Foreign FMCG manufacturers should factor this into capacity planning.

Infrastructure Gaps

Despite massive government spending on infrastructure, logistics costs in India remain 14-16% of GDP compared to 8-10% in developed economies. Port congestion, last-mile connectivity, and power supply reliability remain challenges in certain manufacturing corridors. Foreign manufacturers should conduct thorough site-specific infrastructure assessments before committing to a location — the difference between a well-connected industrial park on a national highway near a major port and a less accessible location in the same state can add 5-8% to total landed cost of goods.

Regulatory and Compliance Burden

While India has improved significantly on the ease of doing business front, manufacturers still face a multi-layered compliance framework spanning central, state, and local regulations. Factory licences, pollution control consents, fire safety certificates, state-specific factory compliance, and labour welfare obligations must all be maintained simultaneously. For foreign manufacturers accustomed to single-window clearance systems in competing countries, India's regulatory environment requires dedicated compliance resources — typically one full-time compliance officer for every manufacturing facility, supported by external legal and tax advisors.

Comparison with Regional Manufacturing Competitors

India's manufacturing data becomes most meaningful when compared against the countries competing for the same FDI flows. Foreign manufacturers evaluating India are invariably also considering Vietnam, Indonesia, Thailand, Mexico, and Poland.

PMI Comparison (February 2026)

India's PMI consistently outperforms its regional competitors, reflecting a manufacturing ecosystem that benefits from three structural advantages: a 1.4-billion-person domestic market that provides demand stability regardless of export conditions, a diversified manufacturing base spanning 23 industrial groups rather than dependence on one or two sectors, and progressive government industrial policy (PLI, National Manufacturing Mission) that actively incentivises capacity creation.

For foreign manufacturers running a comparative analysis between India and Vietnam or India and Indonesia, the PMI data consistently favours India on output momentum, while Vietnam and Indonesia may offer advantages on specific cost metrics or geographic proximity to certain export markets.

FDI Competitiveness

India's total FDI inflow of USD 81.04 billion in FY 2024-25 places it among the top five global FDI destinations. Unlike China, where foreign manufacturers face increasing regulatory uncertainty, local competition, and IP concerns, India's FDI regime has been progressively liberalised. Most manufacturing sectors now permit 100% FDI under the automatic route with no government approval required, and repatriation of profits and capital is freely permitted under FEMA regulations.

How to Use This Data for Investment Decisions

For foreign companies evaluating or expanding manufacturing operations in India, here is how to translate the PMI and IIP data into actionable decisions.

Green Light Sectors (PMI-Backed Growth)

1. Auto components and motor vehicles — 10.9% IIP growth, 712% increase in PLI budget, strong supply chain ecosystem
2. Basic metals and steel — 13.2% IIP growth, infrastructure spending multiplier, PLI scheme access
3. Electronics — 146% production increase over four years, 56% budget increase for PLI, PLI Phase 2 underway
4. Pharmaceuticals — Net exporter status achieved, CDSCO regulatory alignment with global standards

Proceed with Caution

1. Consumer non-durables / FMCG — IIP contraction, margin pressure from input costs
2. Pure export plays — Export order growth slowing; domestic-focused strategies are safer

Timeline for Setting Up Manufacturing Operations

Foreign manufacturers evaluating India should plan for the following typical timeline from decision to production:

Total timeline from FDI decision to commercial production: 10-18 months, depending on whether the manufacturer is setting up a greenfield facility or taking over an existing plant. Japanese and German manufacturers have documented cases of completing the process in 90 days using pre-built factory shells in established industrial parks — see the German manufacturer 90-day setup timeline for a real-world case study.

Entity Structure for Manufacturing FDI

Foreign manufacturers entering India typically choose between a wholly owned subsidiary (100% FDI, full control) and a joint venture with an Indian partner (shared risk, local market access). The choice depends on sector, FDI cap, and strategic objectives. Beacon Filing's FDI advisory team can help evaluate the optimal structure.

Key Takeaways

• India's manufacturing PMI has been in expansion (above 50) for 42+ consecutive months through February 2026 — the longest streak in India's PMI history
• Manufacturing FDI rose 18% YoY in FY 2024-25 to USD 19.04 billion, driven by PLI incentives and China-plus-one strategies
• IIP data shows basic metals (13.2%), motor vehicles (10.9%), and infrastructure goods (13.7%) as the fastest-growing sectors
• PLI scheme has attracted INR 1.88 lakh crore in actual investments and generated 12+ lakh jobs across 14 sectors
• Key risk: export order growth at 17-month low — prioritise domestic demand-driven manufacturing plays