India's private sector expanded at its weakest pace in over three years in March as price shocks from the war on Iran dampened domestic ‌demand, yet international orders hit a record high, a survey showed on Tuesday.

The data signals ‌weakening activity in the final month of the fiscal year for one of the world's top-performing economies, and highlights the risks ​to growth in India and globally from the Middle East conflict.

India's GDP growth had already slowed to 7.8% last quarter from 8.4% in the previous one as government spending and private investment cooled.

HSBC's flash India Composite Purchasing Managers' Index (PMI), compiled by S&P Global, slumped to 56.5 this month, well below the median forecast ‌of 59.0 in a Reuters poll ⁠which had expected little change from February's final reading of 58.9.

While a reading above 50 signals expansion, the downturn was the sharpest in 18 months, pointing to ⁠a notable loss of momentum.

Manufacturing bore the brunt with its PMI sliding to a 4-1/2-year low of 53.8 from 56.9 as the Middle East conflict stoked market instability and consumer uncertainty, dragging factory output growth to ​its softest ​since August 2021.

The services industry, which accounts for the ​majority of India's GDP, also lost ground ‌with the PMI easing to 57.2 from 58.1.

Inflationary pressures intensified sharply, with input costs - oil, energy, food, aluminium, steel and chemicals - rising at their fastest pace since June 2022, while selling prices climbed to a seven-month high.

“Cost pressures intensified, but companies are absorbing part of the increase by squeezing margins,” said HSBC's chief India economist Pranjul Bhandari.

As the world's third-largest oil importer - sourcing roughly 90% of its crude ‌and nearly half its natural gas from abroad - India is ​acutely exposed to oil price shocks. Oil prices ​have already soared over 40% recently.

That threatens to push inflation, already ‌at 3.21% before the war began, even ​higher and slow economic growth.

One ​bright spot was a record surge in international orders since the sub-index was added to the survey in September 2014 with goods producers and service providers logging new business from clients ​across Asia, Europe, the Americas ‌and the Middle East.

Despite the moderation in new domestic orders and mounting cost pressures, business ​optimism hit its highest since September 2023, leading to the quickest pace of job ​creation since August.