India’s manufacturing sector maintained strong momentum in July, with the Manufacturing Purchasing Managers’ Index (PMI) climbing to a 16-month high of 59.1, up from 58.4 in June, according to data released on August 1. This marks the second consecutive month with the PMI holding firmly above the 58-level, reflecting sustained industrial growth.

A PMI reading above 50 indicates expansion in the sector, while below 50 signals contraction. The current level suggests robust factory activity and continued economic resilience, even amid global uncertainties.

Key Factors Behind the Growth

The rise in the PMI was largely driven by:

Strong domestic demand across various sectors
Increased production output
Higher inflows of new orders
Job creation and inventory build-up

This uptick adds to the growing optimism around India’s economic trajectory and aligns with recent global recognition of the country’s performance.

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IMF Revises India’s Growth Forecast

Reflecting this momentum, the International Monetary Fund (IMF) has raised India’s FY26 GDP growth forecast to 6.4%, up from 6.2% estimated in April. The revision reflects the resilience in manufacturing and services, along with robust consumer demand.

New Risk from US Tariffs

However, India’s growth story may soon face headwinds. US President Donald Trump has announced a 25% tariff plus penalty on Indian goods, effective August 1.

These tariffs, targeting a wide range of Indian exports, could negatively impact the country’s trade performance. Economists estimate this move could drag India’s GDP growth by up to 0.3 percentage points in FY26, depending on the extent of export disruption.

Neutral Analysis

The July PMI reading indicates strong underlying momentum in India’s manufacturing base.
Domestic demand remains a key growth driver, buffering the impact of weaker external demand.
While the IMF’s upgraded forecast signals confidence, external risks like US tariffs could pose near-term challenges to exports and industrial growth.

India’s manufacturing outlook remains positive for now, but developments on the global trade front will be closely monitored in the coming quarters.

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