Manufacturing activity slows down to 57.5 in August

Manufacturing PMI in August

Manufacturing activity slowed down to a three-month low of 57.9 in August compared with 58.1 in the previous month, as some firms reported fierce competition affecting output, according to the results of a private survey released in September.

“The Indian manufacturing sector continued to expand in August, although the pace of expansion moderated slightly. New orders and output also mirrored the headline trend,” said Pranjul Bhandari, chief India economist, HSBC.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index, however, remained higher than the long-term average indicating strong performance.

The 400 firms surveyed for the index reported advertising, brand recognition and healthy demand trends contributing to growth even as competitiveness dampened growth.

Export orders also declined, but a tenth of firms did note an improvement in international sales, as per the release.

There was a positive on inflation front as well, with input inflation or purchasing cost inflation declining to a five-month low.

“On a positive note, the rise in input costs slowed sharply… In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers,” said Bhandari.

The fall in input costs pushed up inventory buying. The cost pressures in output did lead to one of the strongest rises in close to 11 years.

Inflation pressures along with competition did dampen future outlook as well.

“Panellists were at their least optimistic since April 2023,” the release stated.

Job creation also softened with firms reducing headcount, which shall prove to be a cause of concern for the government.

The Economic Survey, released on July 22, noted that the government needs to create 7.9 million jobs until 2036.

Data released last week showed the manufacturing growth remained strong at 7 percent in the first quarter of the fiscal from 5 percent in the previous year.

Although India’s GDP growth declined to 6.7 percent in Q1FY25, a higher value-added indicated strong economic momentum, especially with signs of private consumption picking up and investment rising.

Economists expect further pick-up as government spending gathers pace, which had contracted 0.2 percent in the first quarter due to the general elections.

Core industries data showed a rebound to 6.1 percent growth in July compared with the disappointing previous month when growth had dipped to a five-month low of 5.1 percent.

Government capex also jumped 107.8 percent in July, as per data released by the Controller General of Accounts, but utilisation at 16.3 percent in the first four months of the year remained below 23.5 percent same period last fiscal.