India’s Manufacturing PMI Drops To 5-Year Low In July As Domestic Demand Weakens

India’s manufacturing sector witnessed a further slowdown in July as weaker domestic demand affected factory activity, new orders, purchasing decisions and employment growth. However, stronger export demand provided some support to manufacturers during the month.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI) declined to 53.5 in July from 54.2 in June, marking the lowest reading since August 2021.

Although a PMI reading above 50 indicates expansion, the latest figure remained below the long-term average of 54.2, suggesting that manufacturing activity continued to grow but at a slower pace.

The decline was primarily driven by weaker growth in new orders. The increase in new business was the second weakest in more than four years, with companies reporting tougher market conditions and reduced customer interest in some products. However, promotional efforts and steady demand helped maintain overall sales growth.

The softer demand conditions also led manufacturers to reduce input purchases and slow recruitment. Purchasing activity increased at its weakest pace in 31 months, while employment growth declined for the third consecutive month, reaching the slowest level of the current 29-month expansion period.

Exports emerged as a major positive factor in the survey. International demand strengthened during July, with companies reporting increased orders from countries including Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE.

Production levels continued to expand, although output growth remained among the weakest recorded since mid-2022.

Manufacturers also benefited from improved supply chain conditions, with supplier delivery times shortening at one of the fastest rates recorded in recent years.

Companies increased inventories of raw materials and finished goods to protect against possible disruptions caused by renewed geopolitical tensions.

On the pricing front, input cost inflation eased to a five-month low despite higher transportation expenses. Businesses continued to increase selling prices at a moderate pace to maintain profit margins.

Business confidence improved compared with June’s recent low, supported by expectations of stronger demand, increased infrastructure spending and new customer enquiries.

HSBC Chief India Economist Pranjul Bhandari said improving supplier delivery times indicated that supply chain pressures were easing. However, she cautioned that renewed tensions in the Middle East could create uncertainty over the sustainability of these improvements.

She added that manufacturers were rebuilding inventories while stronger exports highlighted continued resilience in overseas demand.