India’s Business Growth Slows in March as Services Sector Cools, HSBC Survey Finds

India’s business activity slowed in March as strong manufacturing growth couldn’t fully offset a decline in the services sector. HSBC’s flash India Composite PMI fell to 58.6 from 58.8 in February, missing expectations of 59.0. While the manufacturing PMI rose to 57.6 from 56.3, marking nearly four years of continuous expansion, the services PMI dropped to 57.7 from 59.0, dragging down overall business growth. Manufacturing output reached its highest level since July 2024, driven by increased new orders, but services demand weakened, impacting economic momentum.

International demand for both sectors also slowed to a three-month low, partly due to new U.S. tariffs on China, Canada, and Mexico, creating uncertainty. As a result, business confidence declined, leading to slower hiring. Input costs for manufacturers rose to a three-month high, squeezing profit margins, though businesses absorbed most of the costs, causing selling prices to increase at their slowest pace since early 2022. Meanwhile, India’s consumer inflation dropped below the RBI’s 4% target in February for the first time in six months, raising hopes for a potential interest rate cut next month.

India’s Business Growth Slows in March as Services Sector Cools, HSBC Survey Finds

India’s business activity grew at a slower pace in March compared to the previous month, as strong manufacturing expansion failed to fully offset a slowdown in the services sector. A private survey released on Monday highlighted the mixed performance across key industries, reflecting an uneven economic trajectory.

According to HSBC’s preliminary Composite Purchasing Managers’ Index (PMI)—compiled by S&P Global—the index slipped to 58.6 in March from 58.8 in February. While a PMI above 50 signals growth, the latest reading fell short of analysts’ expectations of 59.0, indicating a slight loss of momentum in Asia’s third-largest economy.

Manufacturing Gains, Services Weaken

The manufacturing sector continued its upward trend, with its PMI rising to 57.6 in March from 56.3 in February, marking nearly four years of uninterrupted expansion. Factories reported stronger output, driven by increased new orders and improved business conditions. HSBC’s chief India economist, Pranjul Bhandari, noted that manufacturing activity grew at its fastest pace since July 2024, highlighting robust domestic demand.

Conversely, the services sector, a key contributor to India’s economy, saw its PMI decline to 57.7 from 59.0 in February. This downturn weighed on the overall composite index, as businesses in industries such as hospitality, finance, and healthcare reported weaker demand. The decline suggests that both consumers and companies may be tightening spending.

Global Challenges Add Pressure

International demand for Indian goods and services also softened, recording the slowest growth in three months. Bhandari attributed this partly to rising trade barriers, including tariffs imposed by the U.S. under former President Donald Trump. New duties on imports from China, Canada, and Mexico, along with additional tariffs expected on April 2, have heightened uncertainty for exporters. This global trade tension has made businesses cautious about future orders and investments.

Hiring Slows, Costs Rise

The combined effects of weaker services activity and global headwinds dampened business confidence, leading to a slowdown in hiring. Additionally, manufacturers faced rising input costs, with expenses for raw materials and logistics surging to a three-month high in March. Profit margins were squeezed, but businesses largely absorbed these costs instead of passing them on to consumers, resulting in the slowest increase in selling prices since early 2022.

Inflation Declines, Rate Cut Hopes Rise

On a positive note, India’s consumer inflation fell to 3.9% in February, dipping below the Reserve Bank of India’s (RBI) 4% target for the first time in six months. This has fueled speculation that the central bank may consider cutting interest rates as early as next month to stimulate economic activity. Lower borrowing costs could ease pressure on businesses and households, potentially boosting demand in struggling sectors like services.

Outlook

While manufacturing continues to drive growth, the services sector’s struggles highlight vulnerabilities in India’s economic recovery. Experts warn that ongoing global trade disputes and fluctuations in domestic demand could pose challenges in the months ahead. However, easing inflation and potential RBI intervention offer hope for renewed momentum. For now, businesses remain cautiously optimistic, navigating cost pressures while striving to maintain affordability for consumers.