^{Photo: Bloomberg.com}

Growth Momentum Weakens Across Sectors

India’s private sector expansion lost pace sharply in March, marking its weakest growth level in over three years as domestic demand softened and external pressures intensified. The latest data signals a clear shift in momentum for one of the world’s fastest-growing major economies.

According to the HSBC Flash Composite Purchasing Managers’ Index, compiled by S&P Global, India’s PMI fell to 56.5 in March from 58.9 in February. The reading also missed market expectations of 59.0, indicating that business activity is still expanding but at a significantly slower rate.

A PMI reading above 50 signals expansion, but the steady decline suggests that growth is losing strength amid rising economic headwinds.

Domestic Demand Emerges as Key Weak Spot

The primary drag on growth has been weakening domestic demand. New orders within the country rose at their slowest pace in more than three years, reflecting cautious consumer spending and reduced business confidence.

Companies across both manufacturing and services sectors reported that inflationary pressures and economic uncertainty have begun to weigh on purchasing decisions. As a result, firms are seeing slower revenue growth despite maintaining overall expansion.

While India had entered 2026 with strong economic momentum, this slowdown highlights how quickly external shocks can ripple through domestic markets.

Manufacturing and Services Both Lose Pace

The slowdown was broad-based, affecting both key pillars of the economy. Manufacturing activity dropped to 53.8 in March, down from 56.9 in February and below expectations. This marks the weakest factory performance since August 2021.

The services sector, which has been a major growth driver, also cooled. The services PMI came in at 57.2, missing forecasts and marking its slowest expansion since early 2025.

Goods producers were particularly affected, citing volatility, rising input costs, and disruptions linked to geopolitical tensions as major challenges.

Export Orders Surge but Fail to Offset Weakness

Despite the slowdown in domestic demand, export orders recorded a sharp increase, reaching one of the highest growth rates on record. Strong international demand, particularly from key trading partners, provided some support to overall business activity.

However, this surge in exports was not enough to fully offset the weakness at home. The imbalance between external strength and domestic softness has created a mixed economic picture, with companies relying more heavily on overseas markets for growth.

Rising Costs and Margin Pressure Intensify

Another major concern for businesses is the rapid rise in input costs. Cost inflation is now approaching a four-year high, driven by higher energy prices, supply chain disruptions, and currency pressures.

To remain competitive, many companies have chosen to absorb part of these cost increases rather than pass them fully onto customers. This strategy, while supportive of demand, is putting pressure on profit margins and could impact future investment and hiring decisions.

Middle East Conflict Adds External Shock

The ongoing geopolitical tensions in the Middle East have emerged as a critical external factor affecting India’s economy. Disruptions to energy supplies and key trade routes have increased costs for businesses and created uncertainty across industries.

India, being a major importer of crude oil, is particularly vulnerable to rising energy prices. Higher oil costs are expected to widen the country’s current account deficit and put downward pressure on the rupee, which has already weakened to near-record lows in recent sessions.

Travel and aviation sectors have also been affected, with disruptions in Gulf routes impacting services activity and business operations.

Policy and Leadership Response

Narendra Modi addressed the issue in parliament, acknowledging the challenges posed by the global environment. He described the Middle East conflict as a significant concern and warned that its economic effects could persist for an extended period.

The government has urged businesses and consumers to remain resilient, drawing parallels to the country’s response during the COVID-19 pandemic. Policymakers are closely monitoring the situation as they balance growth priorities with inflation risks.

From Strong Start to Slowing Trend

India’s private sector had shown strong performance earlier in the year, supported by improved trade relations and rising global demand. New trade agreements with major partners such as the United States and the European Union had boosted optimism and driven a surge in orders and hiring.

However, the latest data suggests that this momentum is now fading as global uncertainties intensify. The combination of geopolitical risks, rising costs, and softer domestic demand is creating a more challenging environment for businesses.

The Bigger Picture

India’s economic outlook remains fundamentally strong, but the March data highlights increasing vulnerability to global shocks. The divergence between strong export demand and weak domestic consumption underscores the complexity of the current environment.

As long as geopolitical tensions persist and energy prices remain elevated, growth is likely to stay under pressure. The coming months will be critical in determining whether this slowdown is temporary or the beginning of a more sustained moderation in India’s economic expansion.