India's Private Sector Growth Slows to 14-Month Low in January
India's private sector activity experienced a slowdown in January, dropping to a 14-month low of 57.9, according to a preliminary survey. This marks a decrease from the previous month's four-month high of 59.2. The HSBC India Composite PMI Flash reading also fell below the 58 mark for the first time in 13 months.
"Indian private sector companies began 2025 with a deceleration in growth," stated HSBC in a press release. "With new business intakes decreasing, overall output increased at its slowest pace since November 2023."
Manufacturing Sector Shows Strength
Despite the overall slowdown, the manufacturing sector showed a positive trend. Factory output rose to a six-month high of 58, up from 56.4 in the previous month. This is a notable improvement, especially considering that manufacturing was a key factor in the second quarter's sluggish growth, which hit a seven-quarter low of 5.4 percent.
“India’s manufacturing sector started the year strong, with output and new orders recovering from a relatively weak third fiscal quarter," noted Pranjul Bhandari, chief India economist at HSBC. "The rise in new export orders was particularly significant, and the easing of input cost inflation is positive news for manufacturers."
Services Sector Growth Cools
On the other hand, the services sector experienced a slowdown, with new business growth decelerating. "The cooling in growth of new domestic business in the services sector highlights a potential weakness in the economy," Bhandari added. However, new export business for service providers is expected to maintain its growth momentum.
Economic Outlook
The government's annual estimates released earlier this month project a FY25 growth of 6.4 percent, which is lower than the initial estimates of 6.5-7 percent and the RBI's revised estimate of 6.6 percent. To ensure the economy doesn't slip below 6.4 percent growth, it would need to expand by 6.8 percent in the second half of the fiscal year. The economy grew 6 percent in the first half.
Business Confidence and Employment
The uptick in manufacturing activity has boosted business confidence, with sentiment reaching its highest level since May 2024. However, services sector sentiment has declined to a three-month low. Employment in manufacturing has also seen a positive impact, supported by a brighter outlook and lower cost increases.
“In the manufacturing industry, the rate of inflation retreated to a ten-month low and was modest by historical standards,” HSBC reported. In contrast, the services sector recorded a faster pace of cost escalation. Both manufacturing and services firms, however, demonstrated pricing power, with selling prices increasing at a faster rate than in December.
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