India’s manufacturing activity slowed in March to 53.9, the weakest improvement in nearly four years, as rising costs and global uncertainties weighed on demand, according to the HSBC Purchasing Managers’ Index (PMI) data.
“Indian manufacturers signalled a decline in outstanding business volumes for the first time in close to a year-and-a-half. Underlying data indicated that additional recruitment and a softer increase in new orders facilitated backlog clearances,” the HSBC report noted.
The PMI fell to 53.9 in March from 56.9 in February, marking its lowest level since June 2022. Although the index remained above the 50 mark — which separates expansion from contraction — it indicated the weakest improvement in business conditions in nearly four years.
New orders, output growth hit multi-month low
Growth in new orders and output moderated sharply during the month. Both indicators expanded at their slowest pace since mid-2022.
HSBC report noted that companies cited ongoing Middle East conflict, challenging market conditions and rising costs as key factors behind the slowdown. The data suggests that demand conditions softened and uncertainty increased for manufacturers.
Input costs hit 43-month high
Input cost inflation surged to its highest level in 43 months. Firms reported higher prices across a wide range of items, including aluminium, chemicals, fuel, steel and rubber.
Despite the sharp rise in costs, companies refrained from passing on the full burden to customers.
Output price inflation eased to a two-year low as firms focused on retaining customers and staying competitive. Many manufacturers absorbed a significant portion of the cost increases instead of raising selling prices aggressively.
Production and buying activity remain steady
Even as growth slowed, companies continued to expand production and increase input purchases. The pace of growth moderated but remained relatively strong compared to historical trends.
Manufacturers also built up input inventories, partly to ensure smooth operations and avoid supply disruptions.Pre-production inventories continued to rise, although at a slower pace. On the other hand, finished goods inventories declined slightly as firms used existing stock to meet demand.
Export orders provide support
External demand remained a bright spot. Export orders rose at the fastest pace since September, with companies reporting higher demand from regions such as Europe, the Middle East, Japan and China.
Hiring picks up
Manufacturers increased hiring during March, with employment rising at the fastest pace in seven months. Firms added workers to support production and manage inventories.
At the same time, outstanding business volumes declined for the first time in nearly one-and-a-half years, helped by additional hiring and a slower rise in new orders.
Outlook remains positive
Despite current challenges, companies remained optimistic about future output and demand conditions.
Commenting on the data, Pranjul Bhandari, Chief India Economist at HSBC, said, “India’s manufacturing PMI eased to 53.9 in March from 56.9 in February, marking its lowest level since June 2022. Disruptions linked to the conflict in the Middle East are reverberating through the global economy and weighing on Indian manufacturers.”
“Output and new orders slowed noticeably, signalling softer demand and greater uncertainty. Meanwhile, input costs rose sharply across a broad range of items, including aluminium, chemicals and fuels. For now, firms appear to be absorbing much of the increase, keeping output prices relatively contained,” she added.