The growth rate of the private sector in India’s economy slowed in June for the first time in three months. The slowdown was largely due to a moderate slowdown in new business orders, which affected manufacturing and services, as well as a significant drop in overall business confidence. S&P Global’s flash purchasing managers’ survey indicated that the economic environment remains robust. The pace of growth has slowed as markets become more competitive and resourcing problems grow in the region.

Operational growth and the manufacturing sector

HSBC’s Flash India Manufacturing Services Purchasing Managers’ index (PMIs) sank to 57.4 in June from the final reading of 59.3 in May, as output continued to decline in both services and manufacturing, reflecting a contraction in overall business activity. Even if the month-to-month numbers have slowed down, the composite index has stayed nicely above the magic number of 50.0. 

It marks a nearly continuous five-year run of domestic growth, rather than contraction. This economic cooling was clearly felt in both main streams of the Indian economy in the month of June. Services Business Activity Index declined to its lowest level in 17 months to reach 57.3 in June, compared to 59.8 in May.

There is a minor slowdown in the manufacturing sector, where the Flash India Manufacturing PMI fell to its lowest level in three months to 54.5 compared to 55.0 in the previous month, reflecting that the momentum of post-holiday inventory accumulation has started to lose pace. Economists attributed the slowdown mainly to the continued cost pressures and decline in demand. 

Aggregate activity rose to its lowest level since March, though the rate of new orders continued to build up in a resilient fashion. Local market competition, international fuel prices, and country-wide gas shortages consistently appeared as the most significant structural impediments to acquiring a larger quantum of new commercial business, according to surveyed companies.

International demand landscape and easing cost pressures

International markets might have shown mixed performance for Indian businesses in June. While goods producers have seen weak performance abroad, service providers have witnessed an increase in their foreign sales. Goods producers saw the slowest growth of their export orders since March 2023, as demand in the international market for manufactured goods declines.

In core manufacturing, the internal order-to-inventory ratio was still positive, a positive sign for future strength in core manufacturing in the future months. This even tempering of domestic and foreign demand had direct ramifications on corporate hiring policy in all industrial sectors. 

Private sector job growth increased slightly in the month but inched sideways in the ongoing six-month hiring surge. Staffing was already level and was deemed adequate to handle outstanding business liabilities, which were virtually unchanged, so recruitment activity fell to its lowest since December.

Businesses in India still had to contend with increased operational costs owing to the prices of raw materials, including food, chemicals, gas, fuel, metals, and utilities. Input cost inflation eased slightly for the third straight month to its lowest level since January. 

Selling charges at the composite level were also on that downbeat path, rising at the slowest rate in six months, as pricing pressures from the market and rivals led firms to retain more of the cost of materials and components. Business optimism faded sharply to the lowest level since January, though private enterprises generally expressed optimism about production over the coming year. 

Among goods producers, sentiment was especially weak, hitting a level close to its lowest point in four years. This loss of confidence led manufacturers to become highly conservative, as purchases increased at their slowest pace in two and a half years, and finished goods inventories were intentionally lowered.

Conclusion

The June flash PMI reading reflects a distinct and temporary moderation of India’s strong economic growth momentum, as demand in its various segments weakened and business confidence fell. Large corporations are becoming more conservative in their hiring and purchasing strategies as competitive pressure and other infrastructure concerns, such as gas shortages, change the short-term dynamics.

As input costs eased for the 59th consecutive month to multi-month lows and the output-side composite index extended its stretch, the underlying strength of the Indian private sector structure remained robust. The deceleration is a natural process of a stabilization period as industries adjust their inventory levels and accommodate cost pressures, which will place a more robust foundation for future production and economic stability.