JAIPUR: Fresh data on India's private sector economic activity has painted a mixed picture. The HSBC Flash India Manufacturing PMI (Purchasing Managers' Index) declined for the third consecutive month in August, while the services sector staged a strong rebound after hitting a four-year low. According to the survey, compiled by S&P Global, factory activity may have slowed, but with the index still above the 50-mark, the expansion in manufacturing remains intact.
What the PMI Tells Us
The Purchasing Managers' Index is a key gauge of the health of private-sector business activity in an economy, compiled by surveying companies' purchasing managers on output, new orders, employment and prices. A reading above 50 signals expansion, while one below 50 indicates contraction. That is why, despite August's decline, a reading of 52.9 still falls within expansion territory — the pace has simply slowed.
Key Numbers at a Glance
- Manufacturing PMI: Fell to 52.9 in August from 53.5 in July — the lowest level since August 2021.
- Services PMI: Rose to 54.5 from 53.3 in July.
- Composite PMI: Edged up to 54.6 from July's 54.3 (a 52-month low), coming in above the Reuters poll estimate of 54.3.
Notably, India's private-sector activity had hit an over four-year low in July, so August's modest improvement is a welcome sign — though the reading still remains well below the recent average of around 60.
A Third Straight Month of Slowdown
This marks the third consecutive month of decline in the manufacturing PMI. Both factory output and new orders continued to grow, but at their slowest pace in five years. In addition, manufacturing employment was cut for the first time in two and a half years. Companies cited challenging market conditions, rising competition and softer customer demand as the reasons.
Export orders kept growing, but at a slower pace than in July, while the rate of input buying was also the weakest in more than five years, resulting in only a modest build-up of inventories.
Services Take the Lead
On the other hand, the services sector — the largest component of the economy — put in a stronger performance this month, propping up overall activity. The Services PMI jumped to 54.5 from July's 53-month low of 53.3. Stronger demand prompted companies to step up hiring, pushing overall job creation close to its fastest pace since June 2025 — a rise driven largely by the fastest services-sector hiring in 15 months. Taken together, the August data highlight a clear two-speed economy — services are gathering momentum even as the manufacturing engine slows.
HSBC's Chief India Economist Weighs In
HSBC's Chief India Economist, Pranjul Bhandari, commenting on the data, said overall private-sector output growth held steady, helped in large part by robust services activity. Manufacturing growth, she noted, weakened further in August, marking the softest improvement in five years, even as output and new orders continued to rise. She also pointed out that overall employment generation improved in August, led by the services sector.
Price Pressures Rise Too
Input cost pressures eased to a seven-month low — a welcome development. Even so, companies raised their selling prices at the fastest pace since April 2026, in an effort to pass on previously accumulated costs to customers. In other words, even as cost pressures eased somewhat, price increases in the market remain elevated, which could be a concern for policymakers on the inflation front.
Limited Market Impact and the Global Backdrop
The data had little immediate impact on the Indian rupee, with the USD/INR pair seeing only marginal movement — suggesting investors took this mixed PMI report largely in stride. The release comes at a time when flash PMI readings for August from several major economies — the US, UK, Eurozone and Japan — also came in strong, led by their services sectors. Against this global backdrop, India's performance looks relatively steady, though the slowing pace of manufacturing is a signal worth watching for both investors and policymakers.
The Road Ahead
Analysts see the data as reflecting a clear divergence within the Indian economy — with the services sector showing resilience even as the manufacturing engine loses steam. Domestic demand is stabilizing in services while softening in goods, a dynamic that could complicate the balancing act policymakers face between supporting growth and managing persistent price pressures.
Business confidence for the year ahead improved slightly, though the degree of optimism was not as strong as before. The third straight month of manufacturing slowdown, along with the job cuts in the sector, suggests factory owners are turning more cautious for now. In the months ahead, it will be worth watching whether the strength in services continues to offset the manufacturing slowdown, or whether the factory sector's weakness starts to weigh on the broader economy.
