India's manufacturing sector expanded at its slowest pace in nearly five years in July, with the seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) slipping to 53.5 from 54.2 in June — its lowest reading since August 2021, according to HSBC PMI data released on Monday. The index remained above the 50 threshold that separates expansion from contraction, signalling that manufacturing conditions continued to improve.
Decoding the numbers
Resilient demand continued to support the sector, although the pace of growth in new orders, input purchases and hiring moderated during the month, according to an ANI report. "Manufacturers in India continued to benefit from demand resilience, with a sustained rise in new orders underpinning a further expansion in output during July. Growth cooled again across some metrics, however, such as total sales, input purchasing and employment," the report said.
| Indicator | June | July | Status |
|---|---|---|---|
| HSBC India Manufacturing PMI | 54.2 | 53.5 | Above 50; lowest since August 2021 |
| Output expansion pace | — | Among slowest since mid-2022 | Continued to rise |
| Employment growth | — | Weakest in 29-month run | Slowed for third straight month |
Export demand strengthens
Despite softer domestic demand, export orders strengthened in July, with manufacturers reporting higher sales to destinations including:
- Canada
- Egypt
- Indonesia
- Kenya
- Nepal
- South Africa
- Thailand
- UAE
Factory output also increased further, although the pace of expansion remained among the slowest recorded since the middle of 2022. The survey found Indian manufacturers continued to replenish inventories as supply chain conditions improved further. Delivery times for inputs shortened at one of the fastest rates recorded in the survey's history, while inventories of both raw materials and finished goods increased during the month.
"The suppliers' delivery times index rose in July, an encouraging sign that supply chain delays are continuing to unwind. However, renewed tensions in the Middle East have raised fresh doubts about how durable these improvements will be."
— Pranjul Bhandari, Chief India Economist, HSBC
Price pressures and employment
Price pressures shifted during the month. According to Pranjul Bhandari, "input cost inflation moderated, but output charge inflation accelerated, indicating firms are once again passing through price increases to protect margins." The survey showed input cost inflation eased to a five-month low despite transportation expenses remaining elevated.
Employment growth slowed for a third straight month, with hiring expanding at its weakest pace during the current 29-month period of uninterrupted growth, the report showed. Business confidence, however, improved from June's recent low as manufacturers expressed optimism over stronger demand, infrastructure-led activity and an increase in new client enquiries, according to the survey.
Survey methodology and implications for India watchers
The HSBC India Manufacturing PMI is compiled by S&P Global using responses from around 400 manufacturing companies across India. For executives and investors tracking Indian operations, July's reading confirms a still-expanding but cooling manufacturing environment: growth has moderated across total sales, input purchasing and employment even as export orders and output remain resilient. The survey also shows firms are passing on higher output prices to protect margins — a development that bears close monitoring in the coming monthly releases — and that Middle East tensions have raised fresh doubts, in HSBC's assessment, about the durability of recent supply-chain improvements.
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