India's manufacturing sector lost momentum in August, with the Purchasing Managers' Index (PMI) slipping to a five-year low of 52.8, according to S&P Global. The reading, released on Tuesday, marked the third successive monthly decline, down from 53.5 in July. A figure above 50 indicates expansion, while below 50 signals contraction.
The slowdown was driven by weaker growth in output and new orders, both of which fell to five-year lows. Firms reported challenging market conditions and subdued demand for some products, according to the survey. The output index dropped to its lowest level since August 2021, signaling that production is still expanding but at a markedly slower pace, said Pranjul Bhandari, Chief India Economist at HSBC.
Employment also contracted for the first time in more than two years, with the decline described as mild. Companies that reduced staffing levels mainly cited lower business requirements. Input buying expanded for the sixty-second successive month, but at the weakest rate over this period, as some firms restocked while others trimmed purchases in line with softer demand.
On the price front, input cost pressures continued to ease, with input inflation slowing to its weakest pace in six months. Even so, manufacturers still faced higher costs for materials, including steel, and transport. Firms had limited bandwidth to raise selling prices, and the rate of output charge inflation was the slowest in 45 months and below its long-run trend, the PMI report said.
Demand trends softened across two of the three industrial groups tracked by the survey, with consumer goods the exception. Overall, new business increased at a marked rate, but it was the slowest in five years. Panellists attributed the weaker upturn to challenging market conditions and subdued appetite for some products. Export sales continued to rise, with gains reported from markets including Australia, Germany, mainland China, Spain, Thailand and the US, though the growth of international orders eased.
Despite the weak PMI reading, some high-frequency indicators remained robust, with sales of passenger vehicles, two-wheelers and tractors strong in July. However, caution is warranted, according to Nomura Research, which sees four headwinds in the second half of fiscal year 2026-27 (H2FY27). A Nomura report dated 1 September warned of unfavourable base effects from the second quarter of FY27 onwards, with GDP growth last year averaging around 8% for the next three quarters. It also cautioned that any government expenditure cuts, particularly in capital expenditure, could drag down growth and risk a 20 basis point slippage in the FY27 fiscal deficit target of 4.3% of GDP.
The PMI survey is based on responses from purchasing executives of 400 companies.