India’s business growth in September 2024 has slowed to a nine-month low, signalling potential challenges for the economy as demand cools and input costs rise. The Purchasing Managers’ Index (PMI), compiled by S&P Global, dropped to 59.3 from 60.7 in August, marking the slowest growth this year. While the numbers still reflect expansion, with the PMI above the 50-mark that separates growth from contraction, the decline points to a slight softening in economic activity. Both the manufacturing and services sectors followed similar trends in September, though the services sector saw a more pronounced dip, falling to 58.9 from August’s 60.9.

This is the sector’s lowest point since November 2023, reflecting reduced momentum. Manufacturing, too, saw a slight decrease, cooling to an eight-month low of 56.7. This deceleration in both sectors highlights the impact of a softer rise in new business and orders, crucial indicators of domestic and international demand. One key factor in the slowdown has been the reluctance of companies to pass on rising input costs to customers. While businesses faced increasing costs for raw materials and electricity, they chose to absorb much of these hikes rather than significantly raising prices. This trend, while beneficial for consumers, puts pressure on company margins, especially in manufacturing, where firms are experiencing greater compression in profit margins. While the slight easing in growth might raise concerns, it is important to note that the broader picture remains positive.

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India has enjoyed more than three years of uninterrupted expansion, and the current PMI levels are still well above the long-term average. This reflects resilience in the economy, even as it navigates rising costs and fluctuating demand. The slowdown in September’s business growth is also likely to capture the attention of policymakers, particularly the Reserve Bank of India (RBI). With inflation uncertainty looming despite recent declines in price pressures, the central bank may tread cautiously in its upcoming policy meetings. The RBI will need to balance the risks of inflation with the need to support growth. Any sharp rise in inflation due to sustained input cost pressures could force the bank to consider tightening monetary policy, which could further impact business growth. Despite the challenges, optimism remains high in the business community.

Companies have continued hiring new staff, with employment growth in the services sector at its highest in two years. Manufacturing jobs also rose for the seventh consecutive month, though at a slightly slower pace. The on-going expansion in employment suggests that firms are confident about securing new business in the months ahead, underscoring a positive outlook for future growth. The current slowdown appears more like a recalibration than a serious downturn. However, the pressures of rising costs and softer demand will need careful management. Policymakers, businesses, and consumers alike will have to remain vigilant as the economy adjusts to these new challenges in the months ahead.