New Delhi: India's economy is showing a sharp contrast between strong quarterly growth and a recent slowdown in factory activity. Official data showed the economy grew 7.8% in the April to June quarter, while a new survey released on Tuesday showed manufacturing growth weakened to its slowest pace in five years in August.
The HSBC India Manufacturing Purchasing Managers' Index, compiled by S&P Global, fell to 52.8 in August from 53.5 in July. The final reading was also slightly below the preliminary estimate of 52.9.
The PMI remained above 50, the level that separates expansion from contraction. This means India's manufacturing sector continued to grow in August, but the pace of growth slowed significantly.
The main concern was weaker demand. New orders continued to increase, but their growth was the weakest in five years. Manufacturers linked the slower rise to difficult market conditions and weaker demand for some products.
Production also continued to expand, but its growth rate fell to the weakest level since August 2021. Companies pointed to softer demand and smaller increases in new orders as reasons for the slowdown.
The weaker business environment also affected employment. Factory employment declined marginally in August, marking the first fall in 30 months. Companies that reduced staffing mainly cited lower business requirements.
The employment decline was limited, but it is significant because manufacturing employment had continued to rise for more than two years.
Export demand provided some support. Export orders continued to increase during August, with manufacturers reporting new business from markets including Australia, Germany, mainland China, Spain, Thailand and the United States. However, the growth of international orders was slower than in July.
There was some relief from rising costs. Input price inflation fell to a six month low in August. Manufacturers still reported higher prices for some materials, including steel, as well as higher transport costs, but overall cost pressures eased.
The easing of input costs allowed companies to limit increases in their selling prices. Output price inflation fell to its weakest level in 45 months and remained below its long term trend.
Business confidence also improved. Expectations for future production rose to their highest level since May, although confidence remained subdued by historical standards.
The manufacturing slowdown comes shortly after India reported strong economic growth for the first quarter of the 2026 to 27 financial year.
According to the Ministry of Statistics and Programme Implementation, real gross domestic product grew 7.8% in the April to June quarter compared with the same period a year earlier. Real gross value added grew 8.2%.
Manufacturing was also a major contributor to that quarterly performance. Manufacturing value added grew 9.2% in the April to June quarter.
The contrast between the two sets of figures is important because they cover different periods and measure economic activity in different ways. The GDP figures describe economic performance from April through June, while the August PMI provides a more recent monthly indication of conditions in manufacturing.
The latest PMI therefore does not show that India's manufacturing sector has entered contraction. Instead, it points to a loss of momentum after a period of strong growth.
The difference also does not mean that the official GDP figures and the PMI are necessarily in conflict. GDP is a broad quarterly measure of economic activity, while the PMI is a monthly survey covering business conditions among manufacturers.
The August reading was the third consecutive monthly decline in the manufacturing PMI. At 52.8, it was also below the survey's long term average of 54.2.
The figures suggest that India's economy remains resilient, but manufacturers are facing a more difficult demand environment than earlier in the year. The continued growth of exports and easing cost pressures provide some support, while weaker orders and the first decline in factory employment in 30 months point to growing caution among businesses.
Further data from the services sector will help show whether the weakness in manufacturing is spreading to other parts of the private economy.
For now, the latest figures present a mixed picture. India's economy recorded strong growth in the April to June quarter, with manufacturing itself growing 9.2%. By August, however, the pace of factory expansion had slowed sharply.
The August manufacturing figures do not by themselves establish that the wider Indian economy is heading for a downturn. They do show that India's manufacturing sector is facing weaker demand and slower growth, despite the economy's strong performance in the first quarter of the financial year.