India’s business activity growth lost momentum in March, slipping to its lowest level in 41 months as the ongoing Iran war began to weigh on demand, costs, and overall sentiment. According to the latest flash Purchasing Managers’ Index (PMI) data, the slowdown reflects the first clear signs of economic stress linked to the geopolitical conflict in West Asia.
The composite PMI, which measures manufacturing and services activity, fell to 56.5 in March from 58.9 in February. While the figure still suggests expansion (anything above 50 indicates growth), the rate has slowed drastically, marking the slowest expansion in nearly three and a half years.The economic crisis comes as India’s economy is already showing symptoms of cooling, with GDP growth slowing in recent quarters. The increased burden from global uncertainties has slowed business momentum.
Manufacturing Sector Takes the Biggest Hit:
The manufacturing sector bore the brunt of the slowdown, with output and new orders weakening sharply. The manufacturing PMI fell to 53.8 in March, its lowest level in over two-and-a-half years, indicating reduced factory activity and softer demand.
This decline has been largely attributed to rising input costs, especially energy prices, which have surged due to disruptions caused by the Iran conflict. Businesses reported higher expenses for fuel, metals, and transportation, all of which have pushed up production costs.
As a result, companies have either passed on these costs to consumers through higher prices or absorbed them, impacting profit margins. The increase in selling prices was the steepest in several months, reflecting inflationary pressure building across the economy. The services sector, while still growing, also showed signs of slowing, indicating that the impact of higher costs and weaker demand is spreading across industries.
Rising Costs and Weak Demand Drag Growth:
One of the key factors behind the slowdown is the sharp rise in input costs, which climbed at the fastest pace in nearly four years. The surge has been driven primarily by higher crude oil prices, as the Iran war disrupted global energy supply chains.
The battle, particularly disruptions along vital oil routes, has resulted in a surge in global oil prices, drastically increasing import costs for energy-dependent economies such as India. This has had a major impact on transportation, manufacturing, and overall business costs.
At the same time, domestic demand has softened as consumers become more cautious amid rising prices. Businesses reported weaker growth in new orders, especially within the domestic market, reflecting a slowdown in spending. However, there was a silver lining. Export demand remained strong, with international orders rising at a record pace. This suggests that while domestic conditions are under pressure, global demand for Indian goods and services remains resilient.
Outlook Remains Uncertain Amid Global Tensions:
The outlook for the coming months remains uncertain, as much will depend on how the geopolitical situation evolves. Economists warn that prolonged conflict could further push up energy prices, leading to sustained inflation and slower economic growth.
Despite the challenges, business confidence has shown some resilience. Companies continue to hire at a steady pace, with job creation reaching one of its fastest rates in recent months. This indicates that firms are still optimistic about long-term demand, even as short-term pressures mount.
The data highlights a delicate balance for policymakers. While growth remains positive, rising inflation and external risks could limit the room for policy support. The Reserve Bank of India may face increasing pressure to manage inflation without stifling growth further. Overall, the slowdown in March serves as a reminder of how global events can quickly ripple through domestic economies. As the Iran war continues to disrupt energy markets and supply chains, its impact on India’s business activity is likely to remain a key concern in the months ahead.
