India's business growth experienced a slight dip in March as the expansion in the manufacturing sector could not fully offset a slowdown in the services sector, according to the latest data from the HSBC flash India Composite Purchasing Managers' Index (PMI).
The index, compiled by S&P Global, fell to 58.6 from February's reading of 58.8, slightly below the expectations of economists who had forecast a figure of 59.0.
The PMI index, which measures overall business activity, uses the 50-mark as a dividing line between growth and contraction. While the manufacturing sector demonstrated considerable resilience, the services sector faced a decline that weighed on overall business growth.
Manufacturing PMI increased to 57.6 in March, up from 56.3 in February, marking its highest level since July 2024. This indicates that manufacturing has remained in the expansion zone for over three and a half years.
Stronger output and a rise in new orders suggested improving operating conditions for manufacturers, signalling a steady demand within the sector. However, international demand for manufactured goods experienced a slowdown, expanding at its slowest rate in three months.
In contrast, the services sector, a significant contributor to India's economic growth, saw its PMI drop from 59.0 in February to 57.7 in March. This reduction points to a weakening demand for services, which impacted the overall business environment.
New business orders in the services sector showed a marked decline, reflecting a more cautious approach by consumers and businesses.
Pranjul Bhandari, chief India economist at HSBC, noted the divergence between the manufacturing and services sectors. She highlighted that while the manufacturing output index reached its highest level since mid-2024, the services sector's slowdown dampened overall growth.
Additionally, international demand for both manufacturing and services sectors weakened due to recent trade policies and tariff announcements.
The global trade environment has become increasingly unpredictable due to new tariffs imposed by the United States on goods from China, Canada, and Mexico.
The uncertainty surrounding potential further tariffs has created a challenging landscape for businesses worldwide, affecting export orders and overall sentiment.
Indian businesses expressed less optimism about the coming year, with sentiment for future activity reaching a seven-month low.
This cautious outlook has resulted in a slowdown in hiring, with companies hesitant to expand their workforce amid uncertain economic conditions.
March also saw an increase in input costs, with manufacturers facing the sharpest rise in three months. The pressure on margins intensified as input price inflation rose, while factory gate prices recorded their weakest increase in a year.
Despite rising input costs, businesses chose not to transfer the burden to customers, resulting in the slowest overall charge inflation since February 2022.
India's consumer inflation fell below the Reserve Bank of India's (RBI) medium-term target of 4 pc in February, the first instance in six months.
This decline has raised expectations of a potential rate cut by the RBI in the coming months, aimed at stimulating growth and supporting businesses facing challenging market conditions.
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