India's business growth slips marginally in August as manufacturing activity eases, says HSBC Flash PMI

India's business activity moderated in August, maintaining its growth momentum but at a slower pace compared to July. The services sector continued to drive the economy forward, while manufacturing activity eased, weighed down by a slowdown in new orders and production, according to a flash survey by HSBC Holdings Plc.

Despite the slowdown, August marked the 37th consecutive month of expanding private sector output across India, with the rate of increase still robust by historical standards. Based on responses from 400 manufacturers and 400 service providers, the survey indicated that growth remained substantial.

The HSBC flash PMI survey, compiled by S&P Global, highlighted strong new business inflows, solid job creation, and optimistic growth expectations. However, there were softer increases in input costs and selling prices, signalling some moderation in inflationary pressures.

The India Services Purchasing Managers’ Index (PMI) Business Activity Index inched up to 60.4 in August from 60.3 in July, underscoring the strength of the services sector, which accounts for more than half of the country's gross domestic product.

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In contrast, the Flash India Manufacturing PMI Output Index dipped to 60.9 in August from 61.7 in July, while the Flash India Manufacturing PMI fell slightly to 57.9 from 58.1. The India Composite PMI Output Index, which combines both manufacturing and services, edged down to 60.5 from 60.7 in the previous month.

Surge in new orders

Indian private sector companies reported another rise in new orders in August, driven by strong demand, favourable market conditions, and successful advertising campaigns. Despite the expansion slowing to its weakest since May, the pace remained robust, with growth evenly distributed between goods producers and service providers.

On the international front, services firms saw stronger growth in export orders than their manufacturing counterparts, although the rate of increase softened across both sectors. Composite new export orders rose at the slowest pace since April.

“India’s flash composite PMI slipped slightly in August, though it remained significantly higher than the historical average. The manufacturing sector experienced a softer rise in output, while services firms saw a slightly quicker rise in business activity,” noted Pranjul Bhandari, chief India economist at HSBC.

"Although new order growth for the manufacturing sector slowed to the weakest since February, the pace of expansion remained sharp, indicating continued strong demand and favourable market conditions," Bhandari added.

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Despite a slight slowdown in input prices, output price inflation in the manufacturing sector surged to an 11-year high, suggesting manufacturers could pass higher costs to consumers. Bhandari noted that manufacturing firms reported a decline in outstanding business volumes for the first time in eleven months, while service providers recorded another monthly increase.

India’s $10-trillion ambition

India aims to have a $10 trillion economy over the next decade, with growth driven by an expanding manufacturing sector. Key focus areas include semiconductors, electronics manufacturing, the electric vehicle ecosystem, renewable energy, and defence.

The central government has ramped up capital expenditure to bolster infrastructure, create jobs, and stimulate manufacturing growth to support this ambition.

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"Private sector companies in India forecast higher output levels in the year ahead, amid expectations that demand conditions will remain favourable," the survey noted. However, it also cautioned that positive sentiment in August was somewhat tempered by concerns over inflation and rising competition.