India's overall business activity experienced a slight deceleration in March, as robust manufacturing growth was tempered by a slowdown in the services sector, according to HSBC's flash India Composite Purchasing Managers' Index (PMI) compiled by S&P Global. The index edged down to 58.6 from February's 58.8, slightly below the anticipated 59.0.

The manufacturing PMI rose to 57.6 from 56.3, marking over three and a half years of continuous expansion. This uptick indicates improved operating conditions, driven by increases in both output and new orders. Pranjul Bhandari, chief India economist at HSBC, noted, "India's manufacturing sector expanded at a faster pace in March... The output index rose to its highest level since July 2024."

Conversely, the services PMI declined to 57.7 from 59.0 in February, signaling a reduction in growth momentum within the dominant-services sector. This decline is attributed to a slowdown in new business inflows, suggesting a softening in domestic demand.

Both manufacturing and services sectors experienced a slowdown in international demand, expanding at the slowest pace in three months. This moderation is partly linked to recent tariff announcements by the United States on goods from major trading partners, including China, Canada, and Mexico, which have introduced uncertainties in the global trade environment.

The dampened outlook has affected business confidence, with sentiment for the coming year dropping to a seven-month low. This cautious stance has also led to a deceleration in hiring activities across sectors.

Manufacturers faced increased input costs, reaching a three-month high in March. Despite this, firms have been hesitant to pass on these costs to consumers, resulting in the lowest charge inflation since February 2022.

The current economic indicators, including subdued consumer inflation, may influence the Reserve Bank of India's monetary policy decisions. With inflation remaining below target, there is speculation that the central bank might consider another rate cut to stimulate economic activity.