India’s private sector activity grew at the slowest pace in over 4 years, weighed down by reignited hostilities in West Asia and a jump in inflationary pressures, S&P Global said on Friday.
The HSBC Flash India Composite Purchasing Managers’ Index fell to 54.3 in July, the lowest since March 2022, pulled down by weak expansions in sales and output, particularly in the services sector. The composite PMI was 57.1 in June.
“Growth was reportedly stymied by increasingly challenging market conditions, competitive pressures, order cancellations, reduced client enquiries and shortages of key raw materials,” S&P Global, which compiled the PMI, said in a release.
New orders rose in July but the pace of growth was the weakest in close to four-and-a-half years, S&P Global said.
Services Slowdown Drags Output
The moderation in growth of both new orders and output was centred on India’s service economy, where rates of expansion retreated substantially from June to the weakest in 53 months. The Flash Services PMI fell sharply to 53.1 in July from 57.4 in the previous month.
In contrast, the manufacturing industry recovered some of the momentum it had lost previously, S&P Global said. The Flash Manufacturing PMI moderated to 53.9 from 54.2 in June.
New export orders, however, rose at a stronger pace and firms continued to hire additional workers.
“One area where both sectors moved in sync was exports, with growth accelerating at manufacturing firms and their services counterparts,” S&P Global said. Manufacturing firms did better in exports than their services counterparts. At the composite level, the latest upturn in international sales was the most pronounced since March.
Rising Cost Pressures
On the price front, there were faster increases in both input costs and output charges. The aggregate rate of increase in output prices was the fastest since April, S&P Global said. Firms said that ongoing cost rises sparked the upturn in their fees.
Input costs across the manufacturing and services sectors increased at a quicker rate than in June, with fuel, labour, materials, and transportation leading the rise, S&P Global said.
“Renewed tensions in the Middle East have once again resulted in firms building buffers to manage the uncertainties around the longevity of the supply-side shock,” said Pranjul Bhandari, chief India economist at HSBC. “Price pressures firmed, with output charge inflation gathering pace and signalling a renewed push to protect margins.”
Employment in the private sector continued to rise in July, the seventh consecutive month of growth. However, the pace of job creation was modest. Service providers outperformed manufacturers on this front, S&P Global said.