India’s Manufacturing PMI Slips to Five-Year Low of 52.8 in August Amid Slower Output Growth

India’s manufacturing sector experienced a continued slowdown in August, with the Purchasing Managers’ Index (PMI) slipping to a five-year low of 52.8. This follows a reading of 53.5 in July and marks the third successive month of decline for the index, according to data released by S&P Global on Tuesday. The PMI survey is compiled from responses provided by purchasing executives across 400 companies, where any index reading above 50 signifies expansion while a figure below 50 indicates contraction.

Pranjul Bhandari, Chief India Economist at HSBC, noted that the output index fell to its lowest level since August 2021. While the reading indicates that production continues to expand, it is doing so at a markedly slower pace. The softer sales environment directly impacted workforce decisions, resulting in manufacturing employment edging into a mild contraction in August. This represents the first decline in job growth in over two and a half years. Survey respondents who reduced staffing levels pointed primarily to lower business requirements.

Input buying behaviors also reflected the broader moderation in demand. Purchasing activity expanded for the sixty-second consecutive month, but at the weakest rate observed over that period. While some firms engaged in restocking, others actively trimmed their purchases to align with softer demand trends. Demand softened across two of the three industrial groups tracked by the survey, with consumer goods remaining the sole exception.

Although new business continued to increase at a marked rate, the pace of growth was the slowest recorded in five years. Survey panellists attributed this weaker upturn to challenging market conditions and a subdued appetite for specific products. On the international front, export sales continued to rise with gains reported from markets including Australia, Germany, mainland China, Spain, Thailand, and the United States. However, the growth rate of international orders eased compared to July.

Price pressures showed signs of receding midway through the second fiscal quarter. Manufacturers reported facing continued costs for materials such as steel, as well as transport expenses, but the overall rate of inflation was moderate and registered as the weakest in six months. This easing of input cost pressures allowed firms to raise their selling prices more modestly, with the rate of output charge inflation slowing to a 45-month low that sits below its long-term trend.

Despite the softer performance metrics across output and employment, business expectations saw a slight recovery. Approximately 16 per cent of survey participants forecast higher output levels over the coming 12 months, while the remainder anticipate no change from present conditions. Confidence rose to its highest level since May, though it remains subdued by historical standards, according to S&P Global.

"The drop in India's manufacturing PMI to a five-year low points to a cooling domestic demand cycle and cautious business sentiment. For businesses, particularly growing enterprises and manufacturers, this environment calls for tight working capital management and conservative inventory planning. While easing input cost pressures provide some relief, founders and business leaders must closely monitor demand trends and cash flows as the sector navigates this softer growth phase." — Dr. Shishir Gupta, Founder & CEO, StartupLanes