India Manufacturing Growth Slows to Five-Year Low in August

India’s manufacturing sector expanded at its weakest pace in five years in August as softer demand weighed on new orders, production and employment, according to the latest private-sector survey.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 52.8 in August from 53.5 in July. The final reading was also slightly below the preliminary estimate of 52.9.

Although the index remained above the 50.0 threshold separating expansion from contraction, the decline highlighted a loss of momentum across India’s factory sector.

New orders increased at their slowest rate since August 2021, with manufacturers citing difficult market conditions and weaker demand for certain products. Export orders continued to rise, but growth in international demand also moderated compared with July.

Manufacturing output expanded during August, though at its slowest pace in five years. The weaker operating environment also affected employment, with factory headcounts declining for the first time in 30 months. However, the reduction in jobs was described as marginal.

The manufacturing slowdown comes despite strong economic growth earlier in the year. India’s economy expanded 7.8% year-on-year during the April-June quarter, beating the 7.1% growth forecast in a Reuters poll. Investment and manufacturing activity were among the main drivers. Growth, however, is expected to moderate to 6.6% in the current quarter, according to the poll.

Inflationary pressures offered some relief for manufacturers. Input cost inflation eased to a six-month low, allowing companies to limit increases in selling prices. Output price inflation subsequently slowed to its weakest level in 45 months and fell below its long-term average.

Despite weaker manufacturing activity, business confidence improved modestly in August, reaching its highest level since May. Still, overall optimism remained subdued compared with historical levels.

The latest India manufacturing PMI figures suggest the sector remains in expansion territory but faces growing pressure from sluggish demand, slower order growth and cautious hiring.