India's Economic Slowdown
India's Private Sector Growth Hits Three-Month Low as Demand and Global Headwinds Cool
Key Points
Manufacturers reported the weakest rise in export orders since March 2023, while services exporters saw a marginal uptick in international sales, underscoring divergent external demand across sectors.
Input costs across the private sector rose, but at the slowest pace in five months, suggesting some easing of inflationary pressures.
Purchasing activity grew at its slowest pace in two-and-a-half years, with finished-goods inventories declining, signaling a tighter stock-building cycle.
Business confidence among firms weakened to its lowest level in nearly four years, showing increasing caution even as the PMI remained above 50.
Gas shortages and higher fuel prices were repeatedly cited by survey respondents as factors weighing on the ability to secure new work and sustain demand.
India's private sector expanded in June but at its slowest pace in three months, as both factories and service firms pulled back amid rising fuel costs and weaker demand. The HSBC Flash Composite PMI — a monthly survey of about 800 businesses that tracks whether activity is growing or shrinking — fell to 57.4 in June from 59.3 in May, S&P Global reported on June 23. Any reading above 50 signals growth, but the drop marks the weakest showing since March.
Business confidence slid to its lowest point in nearly four years. Gas shortages and higher fuel prices were the most-cited drag. Firms kept hiring, but at the slowest rate in six months, HSBC noted.
Services Hit a 17-Month Low as Demand Softens
India's services sector — think restaurants, tech firms, and financial companies — drove the overall slowdown. The Services PMI dropped to 57.3 in June from 59.8 in May, a 17-month low, according to HSBC. New orders eased and cost pressures stayed high. Firms still grew, but the momentum faded fast.
Services exports bucked the trend, rising slightly. But that wasn't enough to offset softer domestic demand. Employment in services grew only marginally — far below the strong hiring seen in early 2026. Analysts at Angel One warned the mixed signals could create earnings volatility for services companies in the coming quarter.
Factory Growth Weakest Since March as Export Orders Dry Up
Manufacturing slowed to a PMI of 54.5 in June, down from 55.0 in May — also a three-month low. Export orders were the hardest hit. Manufacturers reported the weakest rise in overseas sales since March 2023, according to S&P Global. Weaker global demand and rising competition abroad weighed on order books.
Purchasing activity — how much raw material firms bought — grew at its slowest pace in two-and-a-half years. Finished-goods inventories actually declined. That signals factories are tightening their belts rather than building stock, which could create supply bottlenecks if demand bounces back quickly, Mint reported.
Gas Shortages and Fuel Hikes Squeeze Firms Across Sectors
Survey respondents repeatedly flagged gas shortages and higher fuel prices as barriers to winning new business. India imports over 80% of its crude oil. Three fuel price hikes since mid-May totaling roughly ₹5 per litre pushed operating costs higher for manufacturers and service providers alike, according to Voice Lapaas. Major steelmakers like JSW Steel faced the risk of unit shutdowns due to gas supply constraints.
Input costs across the private sector did rise in June, but at the slowest pace in five months — a small piece of good news. HSBC's Chief India Economist Pranjul Bhandari said the moderation reflected a natural cooling after a "hectic" period of inventory building. She added that the order-to-inventory ratio was still ticking up, suggesting the sector's underlying health remains intact.
RBI Faces a Tough Call as Rupee Weakens and Growth Cools
The slowdown puts India's central bank, the Reserve Bank of India (RBI), in a difficult spot. The Rupee weakened to 94.65 per US dollar on June 23, up from 93.80 in May, according to Bloomberg. With energy import bills rising, the RBI may need to keep interest rates higher to stop more money flowing out of the country — even as growth slows.
Government officials and HSBC economists stress that a PMI of 57.4 is still strong by global standards. India remains one of the world's fastest-growing major economies while the Euro zone contracts and the UK shrinks. But industry groups warn that gas shortages are a structural problem, not a passing one. If fuel costs stay high through July, the private sector may post its first net job losses since late 2025, Financial Express cautioned.
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