India's manufacturing purchasing managers' index (PMI) tumbled to 53.8 in March, its lowest since August 2021, while the services index fell to 57.2. This drove the composite index down to 56.5 from 58.9 last month, signaling a contraction in economic activity. The HSBC flash survey attributes the slump directly to gas shortages caused by Iran's disruption of the Strait of Hormuz, a critical energy import route. Factories curtailed output, and industries from fertilizer production to semiconductor-grade helium manufacturing suffered, raising growth risks.

Government emergency rationing prioritized household gas supplies after Iran effectively closed the strait. The shortage forced many hotels, restaurants, and industrial units to shut down temporarily. Output growth eased across both manufacturing and services as energy shock unfolded, with new orders growing at the slowest pace in over three years despite surging exports. Firms absorbed most cost burdens, but price pressures intensified in services, while recruitment slowed moderately.

The PMI data underscores how geopolitical instability is now a direct threat to India's economic momentum, with manufacturing bearing the brunt of the disruption. This contraction risks prolonging the recovery from pandemic lows, potentially altering investor sentiment toward Indian equities and corporate earnings forecasts.