India’s private sector expansion, though still robust, showed signs of moderation in September 2025. According to the HSBC Flash India PMI survey compiled by S&P Global, both the manufacturing and services sectors recorded strong growth, albeit at a slower pace than the multi-year highs observed in August. The findings suggest that while the economy continues to demonstrate resilience, global trade dynamics and domestic competitive pressures are beginning to temper momentum.
The HSBC Flash India Composite Output Index, which measures the combined performance of manufacturing and services, stood at 61.9 in September, down from 63.2 in August. Despite the dip, the reading still indicated a sharp rate of expansion, marking the second-best performance in over two years. Historically, any score above 50 reflects growth, and India’s latest reading remains well above its long-term average, underscoring the economy’s relative strength.
Growth in factory production outpaced services activity, although both sectors recorded slower increases compared to the previous month. This moderation highlights the delicate balance between strong domestic demand and external challenges, including new trade barriers.
Manufacturing PMI moderates but stays healthy
The HSBC Flash India Manufacturing PMI declined to 58.5 in September from 59.3 in August, still well above the neutral threshold of 50.0 and its long-run average of 54.2. This suggests continued improvement in operating conditions, albeit at a slower pace.
Export performance, however, revealed vulnerabilities. As HSBC’s Chief India Economist Pranjul Bhandari noted, the imposition of a 50% tariff rate by the United States on Indian goods likely contributed to a slowdown in new export orders over August and September. The softer international demand comes after a period of frontloaded shipments to the U.S. earlier in the year, reflecting how geopolitical and policy changes are shaping India’s trade dynamics.
Nevertheless, domestic demand remained supportive. The report highlighted a rise in new domestic orders, likely boosted by recent announcements of lower GST rates, which encouraged consumption. This divergence between external and internal demand reflects India’s growing reliance on domestic consumption as a stabilizing factor.
Services sector expansion slows
The HSBC Flash India Services PMI Business Activity Index fell to 61.6 in September, down from 62.9 in August. The sector, which forms the backbone of India’s economy, showed signs of cooling but maintained a strong growth trajectory.
International sales within services slowed, registering one of the weakest expansions since March 2025. This contrasts with manufacturing, where goods producers managed a quicker upturn in export demand. As a result, aggregate new export order volumes rose at the softest pace in six months, pointing to weaker momentum in India’s outward-facing industries.
Employment and capacity utilization trends
India’s private sector employment continued to rise in September, though at a more moderate pace than in August. Job creation was relatively modest, with only about 3% of manufacturers and 5% of service providers reporting workforce expansions. The majority of businesses indicated that existing labour levels were sufficient to meet demand, suggesting a cautious approach to hiring amid global uncertainty.
Backlogs of work rose only marginally, and the survey highlighted a general absence of significant capacity pressures. This indicates that while demand conditions remain favourable, companies are not yet compelled to significantly expand their operational capacities.
Inflation and cost pressures
Price dynamics brought mixed signals. On the input side, manufacturers faced rising costs for commodities such as cotton, electronic components, oil, steel, and wood. In contrast, services providers experienced a slowdown in cost inflation, though wage bills remained elevated.
Interestingly, manufacturers passed on these higher costs more aggressively than service providers. Factory gate charges rose at the fastest pace in over 12 years, signaling a stronger pricing power in goods industries. However, a substantial slowdown in service-sector price increases moderated overall private-sector inflation.
This divergence suggests that while India’s manufacturing sector is grappling with global commodity price pressures, the services industry is providing a stabilizing effect by cushioning aggregate inflation.
Business confidence and outlook
Despite the moderation in headline indices, business sentiment improved. Private sector firms expressed optimism about future output, with confidence climbing to a seven-month high. Capacity expansion, efficiency gains, competitive pricing strategies, and marketing efforts were cited as key drivers of optimism. Additionally, the recent GST rate reductions are expected to support demand in the coming months.
The resilience of domestic demand, combined with supportive fiscal measures, offers a buffer against external shocks. However, risks remain, particularly from global trade uncertainties, commodity price volatility, and tariff-related disruptions.
Broader economic implications
India’s September PMI results illustrate the duality of the current economic landscape. On one hand, the country’s private sector continues to grow at a pace that outstrips most global peers, reaffirming India’s position as a bright spot in the world economy. On the other hand, the moderation from August’s highs reflects the economy’s sensitivity to external challenges, especially in the export-driven manufacturing space.
For policymakers, the results carry important implications. First, sustaining domestic demand through targeted fiscal measures, such as tax reliefs and investment incentives, will be crucial in offsetting external headwinds. Second, efforts to diversify export markets and strengthen supply chain resilience will be vital to reducing dependence on a few key geographies, particularly the U.S.
From a business perspective, the moderation suggests that while opportunities remain abundant, competition is intensifying. Firms that can adapt by improving efficiency, investing in capacity, and leveraging India’s large domestic market will be best positioned to navigate the shifting landscape.
In this environment, India’s economic outlook remains cautiously optimistic: robust enough to absorb shocks, yet requiring vigilance and adaptive policymaking to sustain momentum in the quarters ahead.
Read More:
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- India’s manufacturing PMI drops to 14-month low of 56.3 in February
FAQ:
How is Manufacturing PMI measured?
It is a weighted index of new orders, output, employment, supplier delivery times, and inventories, with 50 as the neutral mark.
How does Manufacturing PMI affect the market?
It guides investors, businesses, and policymakers, as high PMI boosts confidence while low PMI signals slowdown.
How to predict Manufacturing PMI?
Track new orders, trade policies, commodity prices, and employment trends to anticipate PMI movements.
What does a Manufacturing PMI below 50 mean?
It means contraction in manufacturing activity, signaling weaker demand and production.
What drives business confidence in PMI surveys?
Capacity expansion, GST rate cuts, efficiency gains, and strong domestic demand boost firms’ optimism about future output.
