India's Manufacturing Growth Slows to Five-Year Low in July as Demand Weakens

India's manufacturing sector lost momentum in July 2026, with factory activity expanding at its slowest pace in five years, reflecting softer domestic demand and increasingly challenging market conditions, according to the latest HSBC India Manufacturing Purchasing Managers' Index (PMI) survey.

The seasonally adjusted PMI slipped to 53.5 in July, down from 54.2 in June, marking its weakest reading since August 2021. Although the index remained above the 50-point mark, which signals expansion, the decline indicates that the pace of growth has slowed considerably.

The survey found that new business orders grew at the second-slowest rate in more than four years, as manufacturers faced weaker customer interest despite continued advertising efforts and resilient demand in some segments. Businesses cited difficult market conditions and reduced demand for key products as the primary reasons for the slowdown.

Hiring also lost pace during the month. Employment growth weakened for the third consecutive month, with job creation recording its slowest expansion in the current 29-month growth streak, suggesting companies are becoming more cautious about workforce additions.

Despite weaker domestic momentum, there were positive signs on the external front. Export orders accelerated, driven by stronger demand from countries including Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the UAE. The survey also noted a modest recovery in overall business confidence, supported by expectations of stronger demand, infrastructure projects and new customer enquiries in the coming months.

Supply-chain conditions continued to improve, with delivery times shortening at one of the fastest rates on record, allowing manufacturers to rebuild inventories of both raw materials and finished goods. However, HSBC Chief India Economist Pranjul Bhandari cautioned that renewed tensions in the Middle East could once again disrupt global supply chains.

The survey further showed that input cost inflation eased to a five-month low, although transportation expenses remained elevated. At the same time, manufacturers raised selling prices moderately, indicating that companies continued to pass on higher costs to protect profit margins.

Overall, while India's manufacturing sector remains in expansion mode, the sharp moderation in growth highlights mounting challenges in the domestic market even as exports provide an important cushion.