India’s private sector expanded at its weakest pace in over three years in March as price shocks from the Iran war dampened domestic demand, yet international orders hit a record high, a survey showed on Tuesday.
HSBC’s flash India Composite Purchasing Managers’ Index, compiled by S&P Global, slumped to 56.5 in March versus February’s final reading of 58.9. While a reading above 50 signals expansion, the downturn was the sharpest in 18 months, pointing to a notable loss of momentum.
The manufacturing sector bore the brunt with its PMI reading sliding to a four-and-a-half-year low of 53.8 from 56.9 as the Iran war stoked market instability and consumer uncertainty, dragging factory output growth to its softest since August 2021. The services industry, which accounts for the majority of India’s GDP, also lost ground with the PMI easing to 57.2 from 58.1.
The data signals weakening activity in the final month of the fiscal year for one of the world’s top-performing economies, and highlights the risks to growth in India and globally from the Iran war.
India’s GDP growth rate had already slowed to 7.8% last quarter from 8.4% in the previous one as government spending and private investment cooled.
Inflationary pressures intensified sharply, with input costs—oil, energy, food, aluminium, steel and chemicals—rising at their fastest pace since June 2022, while selling prices climbed to a seven-month high.
“Cost pressures intensified, but companies are absorbing part of the increase by squeezing margins,” said HSBC’s chief India economist Pranjul Bhandari.
As the world’s third-largest oil importer—sourcing roughly 90% of its crude and nearly half its natural gas from abroad—India is acutely exposed to crude shocks, particularly as Iran has virtually blocked the Strait of Hormuz. Crude oil prices have already soared over 40% since the war began.
That threatens to push inflation, already at 3.21% before the war began, even higher and slow economic growth.
One bright spot was a record surge in international orders since the sub-index was added to the survey in September 2014 with goods producers and service providers logging new business from clients across Asia, Europe, the Americas and the Middle East.
Despite the moderation in new domestic orders and mounting cost pressures, business optimism hit its highest since September 2023, leading to the quickest pace of job creation since August.
