India’s manufacturing growth slowed to its weakest pace in more than five years in August as a sharp moderation in output and new orders curbed input purchasing, even as export demand rose and inflation moderated, a survey revealed on Tuesday.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) fell to 52.8 in August down from 53.5 in July, the weakest improvement in the sector’s health in five years. The PMI also remained below the flash reading of 52.9, underscoring that continued tensions in West Asia have raised fresh doubts among manufacturers.
Despite the fall, the PMI reading remained above the 50 mark that separates expansion from contraction, though it was below its long-run average of 54.2.
“Firms reported softer demand conditions (in August), which subsequently led to weaker increases in buying levels and stocks, as well as a mild decline in employment,” the PMI manufacturing survey said.
“Demand trends softened across two of the three industrial groups tracked by the survey, with consumer goods the exception. Overall, new business increased at a marked rate but one that was the slowest for five years. Panellists attributed the weaker upturn to challenging market conditions and subdued appetite for some products,” it added.
Despite slowing manufacturing sector growth, export sales rose further, with gains reported from markets including Australia, Germany, mainland China, Spain, Thailand and the US. That said, growth of international orders eased from July, the survey noted.
Demand cooled
Production volumes at continued to rise strongly in August, but growth eased to its weakest level in five years. Firms linked the slowdown to softer demand conditions and more limited increases in new order volumes, the survey said.
The softer sales environment was reflected in workforce and purchasing decisions. Manufacturing employment fell for the first time in two-and-a-half years, though the rate of decline was only fractional. Companies that reduced staffing levels mainly cited lower business requirements.
“India’s final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month. The output index fell to its lowest level since August 2021, signalling that production is still expanding but at a markedly slower pace,” said Pranjul Bhandari, chief India economist at HSBC.
“Employment edged into a mild contraction in August, the first decline after more than two years of job growth. Meanwhile, input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly,” he added.
Survey data on inventories highlighted growing caution among manufacturers. Stocks of finished goods rose for the second consecutive month as sales fell short of expectations, though the pace of accumulation moderated compared to July.
On the price front, manufacturers saw price pressures recede halfway through the second quarter of the fiscal year. Though manufacturers continued to face higher costs for materials, including steel, and transport, the overall rate of inflation was moderate and the weakest in six months, the survey said.
Softer cost pressures helped firms limit increases in their selling prices. The rate of output charge inflation was slight, the slowest in 45 months and below its long-run trend, the survey said.
Expectations grow
Despite the softer performance, business expectations strengthened, with around 16% of survey participants forecasting higher output over the coming 12 months, and the rest expecting no change from present levels. Confidence rose to its highest mark since May, but remained subdued by historical standards, said the survey.
The findings arrived a day after data showed India’s economic resilience to global turmoil, with Q1FY27 reaching 7.8%, significantly beating market expectations.
Compiled by S&P Global, the HSBC India Manufacturing PMI is based on survey responses from purchasing managers at roughly 400 manufacturers. The panel reflects the broader economy, broken down by sector and workforce size based on each segment’s contribution to GDP.