MManufacturing Expansion in India Cools to Eight-Month Low Amid Sluggish Export Growth
Introduction
India’s manufacturing activity slowed to its weakest pace in eight months in September, as both production and sales expansion decelerated and export orders grew at their slowest rate in 18 months. According to the HSBC final India Manufacturing Purchasing Managers Index (PMI) compiled by S&P Global, the index slipped to 56.5 in September, down from 57.5 in August, reflecting a mild cooling in the sector. Despite the dip, the PMI remains above the crucial 50-point threshold, indicating continued expansion for the third consecutive year.
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PMI Drops to 56.5: Key Trends in Manufacturing
The PMI decline to 56.5 marks a continuation of the downward trend seen in recent months, with the index gradually easing from a high of 58.8 in April. While the long-term average remains above 50, signaling overall growth, the September reading underscores softening momentum in India's manufacturing sector.
Export Orders Slow, Inflation Pressures Rise
A significant factor in September’s manufacturing slowdown was the softer growth in export orders. International demand rose at the weakest pace since March 2023, which weighed on total sales. At the same time, input costs increased due to rising prices of chemicals, packaging, plastics, and metals, placing additional pressure on manufacturers' margins.
RBI Holds Steady Amid Slower Manufacturing Growth
The Reserve Bank of India (RBI) maintained its benchmark interest rate at 6.5% in its August meeting, but speculation remains that a rate cut may be on the horizon in response to the ongoing slowdown in manufacturing. The central bank raised its GDP growth forecast for FY25 from 7% to 7.2%, citing improved rural and urban demand and expectations of a normal monsoon season. Retail inflation ticked up marginally to 3.65% in August, primarily due to high food prices, though it remains within two percentage points of the RBI's 4% medium-term target.
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Outlook: Weaker Profit Growth and Employment Concerns
The compression of profit margins in September, combined with slower growth in new orders, is expected to affect employment trends in the coming months. While the PMI survey indicated a rise in employment and purchase quantities, the rate of job growth has slowed for the third consecutive month, mirroring the loss of momentum in overall manufacturing activity.
In conclusion, while India’s manufacturing sector continues to expand, the slower pace of growth in September raises concerns about future performance, particularly in export-driven industries. With input costs rising and business confidence faltering, manufacturers face a challenging landscape in the months ahead.
Also Read: India’s 7% GDP Growth Not Creating Enough Jobs: Raghuram Rajan