India's factory sector expanded at its slowest pace since early 2009 in August as export orders shrank amid weakening global demand, a survey of manufacturers in Asia's third-largest economy showed.
The HSBC Markit India Manufacturing PMI fell to 52.6 in August, its lowest since a sub-50 reading in March 2009 and below expectations for 52.9 and July's reading of 53.6.
"The main driver of the weaker reading was a significant contraction in export orders, which are facing stiff global economic headwinds," said Leif Eskesen, chief economist for India & ASEAN at HSBC.
Still, India was one of the few countries to show growth.
Similar surveys released on Thursday showed manufacturing activity contracted in the euro zone, Britain and China, with PMI readings all below the 50 level that demarcates growth from contraction.
Growth in new manufacturing orders in India slowed for the fifth consecutive month, while the export orders index fell to 45.0 in August from 49.2 previously, the second consecutive month it has contracted, the survey showed.
Cooling order growth suggests the headline PMI is likely to slow further in the months ahead.
Weakening global demand and tighter policy by the Reserve Bank of India (RBI) have combined to crimp India's economic growth. Data this week showed the economy grew 7.7 per cent in the three months to June from a year earlier, its slowest pace in six quarters.
India's manufacturing sector grew 7.2 per cent in April-June from a year earlier, an improvement from the previous quarter but below the 10.6 per cent growth clocked a year earlier.
Prospects for the rich-world's economies look shaky after a US sovereign debt rating downgrade by Standard & Poor's in early August sent global stock markets into a tailspin, while recent economic releases have pointed to a dire outlook in the months ahead.
The pace of growth in the US manufacturing sector ticked down to a crawl in August, faring better than economists had forecast but remaining at the lowest level in two years, an industry report showed on Thursday.
The US Federal Reserve said last month it expected to leave interest rates on hold at least until mid-2013 and markets are looking ahead to its September meeting for cues on whether there will be a third round of asset purchases or QE3 to prop up the limping economy.
The RBI has raised interest rates 11 times since March last year as it struggles to rein in high inflation, with the last hike in July by a greater than expected 50 basis points, taking the repo rate to 8 per cent.
The PMI survey showed inflation will likely remain a major concern, with growth in factories input prices accelerating for the third month running.
"Inflation pressures remain elevated, with input prices accelerating and output prices still trekking up, albeit at a marginally slower pace," said Eskesen.
Wholesale prices in India rose 9.22 per cent in July after growth of 9.44 per cent in the previous month, and economists see the RBI raising lending rates by another 50 basis points before the end of the year.