India’s private sector growth slows to 3.5-year low in March amid demand, cost pressures

India’s private sector growth moderated to its weakest pace in nearly three-and-a-half years in March, as softer domestic demand and rising cost pressures weighed on overall economic activity, according to data released by S&P Global. 

The HSBC Flash India Composite PMI Output Index fell to 56.5 in March from 58.9 in February, marking the slowest expansion since October 2022. 

The slump was primarily driven by a softer upturn in domestic demand for goods and services, even as international orders surged at the fastest pace on record. Firms cited the ongoing Middle East conflict, volatile market conditions, and persistent inflationary pressures as key factors dampening growth. 

Manufacturing activity saw the sharpest deceleration, with factory output expanding at its weakest pace since August 2021. Goods producers flagged that geopolitical tensions had heightened uncertainty, pushed up input costs and weighed on client demand. 

Services sector recorded a slower expansion 

The services sector also recorded a slower expansion, with business activity rising at the weakest pace since January 2025. Companies pointed to disruptions in international travel and the broader impact of escalating geopolitical tensions as drags on growth. 

New business inflows weakened across both sectors, with overall sales rising at the slowest pace since November 2022. 

Pranjul Bhandari, Chief India Economist at HSBC, said output growth eased across manufacturing and services as the ongoing energy shock took hold. “Softer domestic demand weighed on new orders, which rose at the slowest pace in more than three years, despite a record surge in new export orders. Cost pressures intensified, but companies are absorbing part of the increase by squeezing margins,” she said. 

In contrast to domestic trends, export demand remained strong, with international sales expanding at a series-record pace. Service providers led the growth, although manufacturers also reported improved export orders from markets including Asia, Europe, the US and the Middle East. 

Input cost pressures hit four-year high 

Inflationary pressures intensified across the private sector, with input costs rising at the fastest pace in nearly four years. Companies reported higher prices for a broad range of inputs, including energy, metals, chemicals, food items and electronic components. 

While firms passed on some of the cost increases to customers, selling price inflation remained lower than input cost inflation, indicating margin compression. However, the pace of output price increases was still the strongest in seven months. 

Despite weaker demand conditions, companies continued to hire, with employment rising at the fastest pace since August last year, supported by positive business outlook and ongoing work pipelines. 

Backlogs of work increased marginally for the fourth consecutive month, driven by services, although manufacturing firms reported a decline in pending orders for the first time in 17 months. 

Separately, the HSBC Flash India Manufacturing PMI fell to a four-and-a-half-year low of 53.8 in March from 56.9 in February, reflecting a broader cooling in industrial activity.