As PMI surges and order books of MSMEs look healthy, exports struggle with slowing demand 

Demand in the automobile industry too has risen, with MSMEs in the sector doing much better than pre-pandemic levels.

India's factory output in May expanded at its quickest pace in 31 months, pointing to strength in the manufacturing sector.

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose from 57.2 in April to 58.7 in May, testifying to the solid growth in manufacturing over recent quarters.

Micro, Small and Medium Enterprises (MSMEs), which account for over 90 percent of all businesses in India, on the whole, have posted a smart recovery from the pandemic, as the Economic Survey 2023 has noted.

“The GST (Goods and Services Tax) paid by the sector in FY22 has crossed the pre-pandemic level in FY20,” the report said.

Even so, the survey noted, growth in the manufacturing landscape has been uneven across categories; industries such as automobiles and electronics posted impressive performances but growth in sectors such as textiles was tepid as export demand for these products slowed.

“The order books are looking healthy but there is still some sluggishness in the markets. My orders, however, have risen above pre-pandemic levels by almost 20 percent. A spurt, especially, came when the markets opened... They have now stabilised,” Saransh Gupta, owner of Gupta Polymers in Uttar Pradesh’s Bareilly, which manufactures water tanks and garden pipes, said.

“The cargo prices have recently dipped by 90 percent and our order books have risen by 4 times since pre-Covid years. The orders have especially risen since March this year and the next few quarters are looking extremely positive across the paper packaging industry,” said Sushant Gaur, founder and CEO of Adeera Packaging, which has its manufacturing plant in Greater Noida, said.

Demand in the automobile industry too has risen, with MSMEs in the sector doing much better than pre-pandemic levels.

According to the Economic Survey, the automobile sector is a key driver of India’s economic growth and contributes 49 percent of the manufacturing GDP of India.

In December 2022, India became the third-largest automobile market, surpassing Japan and Germany in terms of sales. Its exports of auto components too rose, the survey said.

“Our business is completely informal and had seen a downfall soon after demonetisation. However, it has finally begun to stabilize this year with orders rising exponentially from March onwards,” said the owner of an auto-parts manufacturing factory, which functions out of Samalkha in Haryana, requesting not to be identified.

While order books, in general, are looking healthy for MSMEs, there are some sectors that continue to struggle, the Federation of Indian Micro and Small & Medium Enterprises (FISME) said.

“Overall MSMEs are seeing healthy growth. The auto sector is witnessing high demand. But sectors that are primarily export

-dependent like textiles, chemicals, gems and jewellery etcetera are struggling and will continue to struggle,” FISME General Secretary Anil Bhardwaj told Moneycontrol.

International markets are experiencing a slowdown with recession looming large in the biggest export markets including the US and the European Union.

“Germany officially went into recession. Some other countries too may show negative growth soon, all of which is putting other sectors under pressure,” Bhardwaj said.

The apparel sector is one of the worst hit, as it faces weak demand, both domestically and internationally. In the current financial year, the textile industry has been facing the challenge of moderating exports, the Economic Survey noted.

“Demand in May to August is generally subdued and grows only after September when the festive season in India comes in. However, due to a major slowdown in international markets, demand has been suppressed further. This quarter has been impacted heavily and we foresee the same for next quarter as well,” said Animesh Chaudhary, owner of Neetee Clothing Private Limited, which has its factory in Gurugram.

Demand in the clothing sector is yet to even touch the pre

-pandemic levels, said Chaudhary.

“We had witnessed a little spurt when markets opened up last year, but that too has fallen. We are still at least 10 percent below the pre-pandemic demand,” Chaudhary added.

A fall in global growth, especially in the West, is set to have a more visible impact on India's already-weakening exports and may hurt manufacturing.

Data released on May 15 for April 2023 showed India’s merchandise exports declined 12.7 percent when compared to the same period last year.

It showed shipments to the US, United Arab Emirates and Singapore fell steeply in April, with engineering goods, textiles, gems and jewellery exports lower compared to the same month last year.