Export orders also declined, ending an 11-month sequence of growth.

"The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index^TM (PMI^TM) fell from 50.1 to 48.5 in August, indicating a moderate deterioration of business conditions. The latest index reading was the lowest in four-and-a-half years and the first sub-50.0 reading since March 2009," a release on the Aug HSBC manufacturing PMI compiled by Markit states.

Commenting on the India Manufacturing PMI^TM survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said,"Manufacturing activity contracted in August for the first time since March 2009. This was led by a decline in new orders, especially export orders. Together with a draw-down in finished goods inventories, this led to a drop in output.

Encouragingly, input and output price inflation slowed despite the weakening of the currency, which likely reflect the softening demand conditions and, therefore, declining pricing power. Notwithstanding the weak growth backdrop, the RBI will likely keep its liquidity tightening measures in place for a while still to help contain the depreciation of the currency. Combined with the heightened macroeconomic uncertainty, this will continue to weigh on growth in coming months."

The HSBC India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 500 manufacturing companies. The panel is stratified geographically and by Standard Industrial Classification (SIC) group, based on industry contribution to Indian GDP.

Survey responses reflect the change, if any, in the current month compared to the previous month based on data collected mid-month.

For each of the indicators the ‘Report' shows the percentage reporting each response, the net difference between the number of higher/better responses and lower/worse responses, and the ‘diffusion' index. This index is the sum of the positive responses plus a half of those responding ‘the same'.

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