Economic Survey 2024-25: 5 reasons why manufacturing sector faces growth challenges

The economic survey presented by Finance Minister Nirmala Sitharaman on Friday highlighted a key factor. The slowdown in global manufacturing. Not only India, but other major economies also faced a headwind in this sector in 2024-2025. However, the services sector remained buoyant. Manufacturing, while steadily recovering, remains slightly below its pre-pandemic trajectory.

“A notable trend was the slowdown in global manufacturing, especially in Europe and parts of Asia, due to supply chain disruptions and weak external demand,” the survey document said.

1. The manufacturing sector faced pressures due to weak global demand and domestic seasonal conditions. Exports in manufacturing slowed significantly due to weak demand from destination countries, and aggressive trade and industrial policies in major trading nations.

2. The above-average monsoon had mixed effects on the sector—while it replenished reservoirs and supported agriculture, it also disrupted sectors like mining, construction, and, to some extent, manufacturing. Variations in the timing of festivities between September and October in the previous and current years led to a modest growth slowdown in Q2FY25.

3. Disaggregated data reveals that while many manufacturing sub-sectors experienced growth, others faced challenges. Oil companies suffered due to inventory losses and lower refining margins, while steel companies faced price pressures and lower global prices.

4. The cement sector faced weak demand in Q2 due to heavy rains and lower selling prices. However, with the conclusion of the monsoon season and the expected pick-up in government capital expenditure, sectors such as cement, iron, and steel are expected to see a recovery. Further, mining and electricity are expected to normalise after the monsoon-related disruptions.

5. According to the Reserve Bank of India’s (RBI) Industrial Outlook Survey, manufacturing firms reported improved demand conditions in Q3 FY25 and expect further improvements in Q4 FY25 and Q1 FY26. The survey also reflected better expectations for production, order books, employment, capacity utilisation, and the overall business environment during Q4 FY25 and Q1 FY26.

“In 2024, the global manufacturing PMI started strong, moving into expansion for the first time since mid-2023 and remained so through the first half of the year. By July 2024, weaker conditions pushed the PMI back into contraction. Following four months of gradual declines, the global manufacturing sector stabilised in November with an index value of 50.0, indicating no overall change in operating conditions,” the survey added.

The outlook for global manufacturing also remained subdued in December, with business sentiment dipping to a three-month low.