Due to both heightened oil prices and growing geopolitical tension in the Middle East, India’s private business sector growth slowed down in March. A recent flash survey released by HSBC shows that the composite purchasing managers’ index (PMI) reading for March is now 56.5, down from February’s 58.9, which marks its lowest value recorded since October 2022. The PMI combines monthly statistics for both manufacturing and service industries. Although a PMI value greater than 50 still indicates that the Indian economy is growing, the drop in PMI value demonstrates the slow and declining economic activity of India’s private sectors occurring as a result of escalating global turmoil.
Economic activity in India’s service sector has also slowed down slightly on account of decreased demand for services and corporate activity. According to the service companies that responded to the survey, both inflation and rising geopolitical risk from the ongoing conflict in the Middle East have negatively impacted business sentiment. However, because of the ongoing conflict, there also exists a potential to increase global oil prices, which is another concern for oil-exporting countries such as India. There is a possibility that an increase in oil prices may also induce an increase in inflationary pressures throughout India and negatively impact consumer spending.
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The survey revealed that orders from abroad were steady and that the demand for products from abroad was at record highs, thereby compensating for the decline in domestic demand. The level of employment still continued to grow, albeit at a slower rate than before. It is economists who believe the Indian economy is resilient. However, the oil price and geopolitical situation in the Middle East will have an impact on the GDP in the near future. Much will depend on how oil prices, currencies, and trade conditions react to the situation in the Middle East.
