India's factory growth slows to five-year low in August as demand weakens

India's manufacturing sector expanded at its slowest pace in five years in August as soft demand weighed on production, new orders and hiring, according to the HSBC India Manufacturing Purchasing Managers' Index (PMI) compiled by S&P Global.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

The manufacturing PMI fell to 52.8 in August from 53.5 in July, marking the third consecutive monthly decline. The reading was also slightly below the preliminary estimate of 52.9. A PMI reading above 50 indicates expansion, while a reading below 50 signals contraction.

Although the sector remained in expansion territory, the latest reading represented the weakest pace of growth since August 2021.

Demand And New Orders Lose Momentum

The slowdown was driven by weaker demand conditions across the manufacturing sector. Firms reported that challenging market conditions and subdued demand for some products weighed on business activity during the month.

New orders continued to rise, but at their slowest pace since August 2021. Export orders also increased, supported by overseas demand, though the pace of growth in international orders moderated compared with July.

The cooling in demand affected factory output as well. Production continued to grow, but at its slowest pace in five years, according to the survey.

Factory Employment Declines

Manufacturing employment contracted for the first time in 30 months as companies responded to softer demand and lower business requirements.

The decline in hiring was described as marginal, but it marked the first reduction in factory headcount in more than two years. The survey indicated that weaker sales conditions led businesses to adopt a more cautious approach to workforce expansion.

Cost Pressures Ease

Input cost inflation moderated during August, offering some relief to manufacturers. According to the survey, input price inflation fell to a six-month low.

The easing in cost pressures allowed companies to limit increases in selling prices. Output price inflation slowed to its weakest level in 45 months and remained below its long-run trend.

Economy Remains Strong, But Growth Expected To Moderate

The manufacturing slowdown comes despite strong economic growth in the first quarter of FY27. India's economy expanded 7.8% year-on-year during the April-June quarter, exceeding the 7.1% median forecast in a Reuters poll, supported by investment activity and manufacturing growth.

However, a Reuters poll expects economic growth to moderate to 6.6% in the current quarter.

Confidence Improves

Despite weaker demand and slower factory activity, manufacturers were slightly more optimistic about the outlook. Business confidence improved to its highest level since May, although sentiment remained below historical norms.

The August survey suggests that India's manufacturing sector continues to expand, but growth has lost momentum amid softer demand, slower order growth and cautious hiring.