India’s manufacturing sector grew again in August 2026. However, growth slowed as demand weakened. New orders and factory output also grew at a slower pace.
According to the latest HSBC India Manufacturing Purchasing Managers’ Index (PMI) survey, business conditions improved at their weakest rate in five years.
The seasonally adjusted HSBC India Manufacturing PMI fell to 52.8 in August from 53.5 in July. The index stayed above 50. A reading above 50 shows growth. However, the August figure was below the long-run average of 54.2.
Manufacturing Growth Slows
August marked the third straight month of slower manufacturing growth in India.
Output and new orders still increased. But both grew at their slowest rate in five years.
Demand fell across two of the three industrial groups covered by the survey. Consumer goods was the only group to see stronger demand.
New business still rose at a strong rate. However, many manufacturers faced weaker demand and tough market conditions.
As a result, some companies became more careful with production and purchasing.
Export Growth Continues
Indian manufacturers continued to win new export business in August.
Export sales increased during the month. Companies reported stronger demand from Australia, Germany, mainland China, Spain, Thailand and the United States.
However, export order growth was slower than in July.
International demand continued to support manufacturers. But it did not fully offset weaker demand in the domestic market.
Factory Output Grows at a Slower Rate
Indian manufacturers increased production in August. However, production growth slowed sharply.
The growth rate fell to its weakest level in five years.
Manufacturers linked the slowdown to weaker demand and slower growth in new orders.
The output index fell to its lowest level since August 2021.
Pranjul Bhandari, Chief India Economist at HSBC, said, “India’s final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month. The output index fell to its lowest level since August 2021, signalling that production is still expanding but at a markedly slower pace. Employment edged into a mild contraction in August, the first decline after more than two years of job growth. Meanwhile, input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly.”
Manufacturing Jobs Decline
The weaker business environment also affected jobs.
Manufacturing employment saw a fractional decline in August.
It was the first fall in factory employment in two-and-a-half years.
Companies that cut staff mainly pointed to lower business needs.
The decline was small. Still, it shows that manufacturers are becoming more careful as demand slows.
Input Buying Still Grows
Manufacturers continued to increase their purchases of inputs in August.
Input buying grew for the 62nd consecutive month.
However, the rate of growth was the weakest in this period.
Some companies continued to rebuild stocks. Others reduced purchases due to weaker demand.
Supplier delivery times also improved. This helped companies rebuild pre-production inventories.
Finished Goods Stocks Rise
Finished goods inventories increased for the second month in a row.
Companies linked the rise to lower-than-expected sales.
The increase in finished goods stocks was moderate. It was also slower than in July.
Pre-production inventories also increased. However, the rate of growth slowed to its weakest level since April.
Input Cost Inflation Slows
Cost pressures eased in August.
Manufacturers still faced higher costs for some materials, including steel. Transport costs also increased.
However, the overall rate of input cost inflation fell to its weakest level in six months.
With costs rising at a slower rate, manufacturers were also more careful about increasing prices.
Selling Price Growth Remains Low
Less than 7% of surveyed companies increased their selling prices in August.
Output price inflation remained slight.
It was the slowest in 45 months and stayed below the long-run average.
Some manufacturers limited price increases to protect their order books.
This shows that companies are focusing on competitiveness while demand remains uncertain.
Business Confidence Improves
Business confidence improved in August despite slower manufacturing growth.
Around 16% of survey participants expected output to increase over the next 12 months.
Most other respondents expected production to remain unchanged.
Confidence reached its highest level since May.
However, confidence remained low compared with historical levels.
Outlook for India’s Manufacturing Sector
The August PMI data shows a mixed picture for India’s manufacturing sector.
Factory activity is still growing. Exports are also providing support.
However, weaker demand is slowing overall growth.
Output, new orders and employment all showed signs of weakness.
At the same time, lower input cost pressure may give manufacturers some relief.
Stronger demand will be important in the months ahead.
Manufacturers may remain careful with hiring and purchasing. They may also keep a close watch on inventory levels.
A rise in new orders could help factory growth regain momentum.
