Business growth down to nine-month low as demand eases, PMI data shows

India’s business activity growth decelerated to its slowest pace in nine months this September, as demand softened and costs rose slightly, according to the HSBC flash India Composite Purchasing Managers’ Index (PMI). Compiled by S&P Global, the index fell to 59.3 from August’s 60.7, signaling a slowdown but remaining firmly in expansion territory for over three years.

The PMI’s 50-mark threshold separates growth from contraction, with September’s numbers indicating continued expansion, albeit at a slower pace.

Pranjul Bhandari, chief India economist at HSBC, noted, “The flash composite PMI in India rose at a slightly slower pace in September, marking the slowest growth observed in 2024. Both the manufacturing and service sectors exhibited similar trends during the month. Nevertheless, the pace of growth remained well above the long-term average.”

Key indicators such as new business and orders—essential markers for demand—showed a more modest rise for both domestic and overseas markets, contributing to the overall cooling of business activity.

Despite the slowdown in activity, the services sector saw its employment numbers rise at the fastest pace in two years. The services PMI fell to 58.9 from August’s 60.9, marking the lowest since November 2023.

However, hiring increased as businesses remain optimistic about securing new contracts over the coming months.

Manufacturing, meanwhile, experienced a slight downturn, with the PMI falling to an eight-month low of 56.7 from 57.5 in August.

This marks the seventh consecutive month of job growth in the sector, although at a slightly reduced pace compared to the previous month.

The survey revealed rising input costs, with companies reporting higher prices for raw materials and electricity. Firms refrained from fully passing these costs onto consumers, resulting in muted price increases.

Bhandari added, “Input cost inflation rose at a slightly quicker pace in September. Rates of increase in output charges slowed in both sectors, with manufacturers experiencing a larger slowdown, implying a bigger reduction in their margins.”

The Reserve Bank of India (RBI) is likely to remain cautious, especially as inflation uncertainty rises despite recent declines in consumer price inflation, which remained below the medium-term target of 4 per cent for a second consecutive month in August.

While demand has softened slightly, the long-term business outlook remains positive. Firms in both sectors are continuing to expand their workforce, driven by expectations of increased future business. Analysts expect that the slowdown in September could be temporary, with economic momentum likely to pick up in the coming months as inflationary pressures ease.

The next RBI policy meeting in early October will be critical as policymakers evaluate inflation risks and overall economic growth. The central bank’s approach will be pivotal in managing both inflation and continued economic expansion amid evolving global and domestic factors.