Dear Reader,
There is some good news this morning.
New data from the HSBC India Manufacturing PMI paints a picture of a robust recovery. In March, the index jumped to 58.1 from 56.3 in February—its highest in eight months—thanks largely to a remarkable surge in new orders, which hit an eight-month high of 61.5. Manufacturers reported faster production growth, brisk increases in factory orders, and the fastest drop in finished goods stocks in over three years as firms tapped into inventories to meet rising demand. Even though international orders registered a slight slowdown, domestic demand was strong enough to buoy overall activity, offering a brief ray of optimism.
What worked?
Helping boost the PMI was a stronger contribution from its largest sub-component: the New Orders Index, where March saw total sales expand to the greatest extent since July 2024, with companies noting positive customer interest, favourable demand conditions, and successful marketing initiatives.
Subsequently, firms scaled up production volumes at the end of the 2024/25 fiscal year. The rate of expansion was sharp, above its historical average and the strongest in eight months. Although new export orders continued to increase strongly in March, the pace of growth retreated to a three-month low. Where international sales expanded, panelists cited gains from Asia, Europe, and the Middle East.
What didn’t
However, March data showed that capacity pressures among manufacturers remained mild. Outstanding business rose at a marginal pace, slower than in February. In turn, recruitment drives were reined in, although employment still rose at a solid rate within the survey data.
Amid reports of higher prices for copper, electronic items, leather, LPG, and rubber, cost burdens increased further. The overall rate of inflation accelerated to a three-month high but remained well below its long-run average. Conversely, the increase in prices charged for Indian goods was softer, with March’s rise being moderate and the weakest in exactly one year.
Trump threat looms
The looming U.S. tariff announcement has cast a shadow over world economies, and India is no exception. As President Trump’s administration weighs a two-tiered tariff approach—potentially levying rates between 10% and 20% on goods from countries including India—the risk of external shocks to this domestic momentum becomes all too real, although, as this data story tells us, India, being a domestic-oriented economy, has relatively low exposure to US tariff hikes compared to several other large economies.
The manufacturing sector’s rapid pace of recovery, driven by robust new orders and production upswings, may soon face headwinds on account of U.S. tariffs. Even as Indian manufacturers rally behind healthy domestic demand, the threat of U.S. protectionism could abruptly reverse the gains, tipping the scales from growth to slowdown.
A signal to the MPC
One could argue that the current situation forces a re-evaluation of monetary policy. The current PMI data shows that the underlying fundamentals of India’s manufacturing sector are strong; however, the uncertainty introduced by potential US tariffs casts a shadow over the future outlook. Policymakers at the Reserve Bank of India might soon be compelled to weigh the benefits of pre-emptive monetary easing against the risks of fuelling inflation. The prospect of tariffs presents a classic dilemma: should the central bank pivot to support growth, or hold steady to prevent runaway inflation?
Add to that the fact that the US now wants to rewire the global economy, including major shifts in policy such as ‘burden sharing’ among allies and the threat of ‘secondary tariffs’, and the case for supporting growth becomes even stronger. What’s more, if the Mar-a-Lago becomes a reality, it will restructure the entire global financial order, as we pointed out here.
All said, the strength of the March PMI offers a temporary buffer—a sign that the domestic economy is absorbing shocks with remarkable resilience. However, the spectre of external policy changes remains a potent risk factor. As the U.S. prepares to unveil its tariff strategy in the coming days, all eyes will be on the RBI on April 9 to determine if additional monetary support is necessary to counteract these potential headwinds.
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Dinesh Unnikrishnan
Moneycontrol Pro
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