India manufacturing growth slows as cost pressures hit 43-month high

Rising costs, geopolitical tensions and softer demand temper momentum in India’s factory sector

India’s manufacturing sector expanded at a slower pace in March as surging input costs, heightened global uncertainty and disruptions linked to the war in the Middle East weighed on demand and output, according to the latest HSBC Purchasing Managers’ Index.

The headline index fell to 53.9 in March from 56.9 in February, signalling continued growth but at its weakest rate in close to four years and below its long-run average. Whilst still comfortably above the 50 threshold that separates expansion from contraction, the reading points to a clear loss of momentum across the sector.

The slowdown was most evident in new orders and production, both of which rose at their weakest pace since mid-2022. Survey respondents cited challenging market conditions, intensified competition, rising costs and geopolitical uncertainty as key factors dampening activity.

At the same time, inflationary pressures strengthened. Input costs rose at the sharpest rate in more than three-and-a-half years, with manufacturers reporting increases in prices for materials including aluminium, chemicals, fuel, rubber and steel.

Despite the surge in costs, firms largely resisted passing the increases on to customers. Output price inflation eased to a two-year low, suggesting companies are absorbing part of the additional burden in an effort to remain competitive and retain clients.

Employment continued to rise, and firms increased purchasing activity, often to build precautionary inventories amid uncertain supply conditions. External demand also showed resilience, with export orders expanding at the fastest pace since last September, supported by clients across multiple regions including Europe, the Middle East and parts of Asia.

Supply chain performance remained broadly stable, with vendors generally able to meet delivery timelines, though the pace of improvement was limited. Backlogs of work declined for the first time in nearly a year and a half, indicating that firms were able to process orders despite moderating inflows.

Business confidence improved slightly but remained tempered by concerns over inflation, global trade conditions and geopolitical risks.