India's PMI in September fell from August's peak, with service sector growth slowing to a six-month low.

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India's PMI index in September retreated from the highs seen in August. Affected by the U.S. imposing a 50% tariff on India, the growth rate of new export orders in September was the slowest in six months, while domestic new orders increased. The growth rate of international sales in the service sector slowed to the lowest level since March 2025.

On September 23, India’s Purchasing Managers’ Index report showed:

India’s preliminary composite PMI output index for September was 61.9, compared with a final reading of 63.2 in August;

India’s preliminary services PMI business activity index for September was 61.6, compared with a final reading of 62.9 in August;

India’s preliminary manufacturing PMI output index for September was 62.7, compared with a final reading of 63.7 in August;

India’s preliminary manufacturing PMI for September was 58.5, compared with a final reading of 59.3 in August.

Divergence between services and manufacturing sectors, with service sector growth slowing to its lowest level in six months

Although the PMI in September declined from last month's high, it still remains strong. India’s manufacturing PMI preview value (a weighted average of new orders, output, employment, suppliers’ delivery times, and purchasing inventory indices) declined from 59.3 in August to 58.5 in September. However, the improvement in business conditions reflected by the PMI remains strong by historical standards. The index is well above the neutral level of 50.0 and the long-term average of 54.2.

Trends in international sales of manufacturing and service sectors are showing divergence. The growth of the service sector has slowed to its lowest level since March 2025, whereas growth among goods producers has accelerated.

Although labor in the private sector continued to expand at the end of the second fiscal quarter, the pace of expansion slowed compared to August, with both manufacturing and service growth rates decelerating.

Cost pressures in India’s service sector remain significant. The slowdown in services forms a stark contrast with the recovery in manufacturing. In addition to rising wage expenses, members of the panel also reported price increases in cotton, electronic components, petroleum, steel, vegetables, and timber. However, from the perspective of the entire private sector, the overall increase in spending in September was not significant.

In terms of prices, the increase in manufacturers' sales prices in September was faster than that of service providers, and the sharp slowdown in the service sector economy dragged down the overall inflation rate.

In September, private companies’ outlook for future output was very optimistic, with overall confidence rising to a seven-month high. The reduction in goods and services tax (GST) boosted confidence for some companies, partially offsetting the negative impact from U.S. tariffs.

According to media reports, India’s Goods and Services Tax (GST) Council has decided to implement a simplified two-tier tax rate structure and expand the range of exemptions. The new tax rates took effect on September 22.

According to the plan, the basic GST rates have been simplified from multiple brackets to two: 5% and 18%. At the same time, a high tax rate of 40% is imposed on some "unhealthy" and luxury goods. In addition, the tax rates on several basic necessities and services will be reduced or fully exempted. Market participants believe this move is expected to stimulate consumption.

Pranjul Bhandari, Chief India Economist at HSBC Bank, said:

"The manufacturing PMI index has slowed, but the pace of expansion remains solid. The US imposing a 50% tariff on India may have caused the growth of new export orders to slow from August to September. This is due to strong growth in India's exports to the US since early 2025.

Meanwhile, there has been an increase in domestic new orders over the past two months, possibly due to the announcement of reductions in goods and services tax (GST) rates. Overall, data to date suggests that the adverse impact of higher tariffs has been partially offset by lower tax rates."

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