Indian Manufacturing Sector Sees Slower Growth in New Business and Output in August
India’s manufacturing sector experienced a slowdown in August 2024, with both output and new business growing at their slowest rates since January. This moderation in growth is attributed to increased competitive pressures and rising concerns over inflation, according to a monthly survey released on Monday.
August PMI Highlights
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) for August stood at 57.5, slightly lower than July’s reading of 58.1. Despite the decline, the PMI remains above its long-term average of 54.0, indicating a substantial improvement in operating conditions within the sector. In PMI terms, a score above 50 signifies expansion, while a score below 50 indicates contraction.
“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, with some panelists citing fierce competition as a reason for the slowdown,” said Pranjul Bhandari, Chief India Economist at HSBC.
Slower Growth in New Business and Exports
The survey indicated that while new business increased sharply through the second quarter of the fiscal year, the pace of expansion slowed to a seven-month low. Additionally, new export orders rose at the weakest rate since the beginning of 2024, reflecting the challenges posed by global economic conditions.
Input Costs and Pricing Trends
On the pricing front, Indian manufacturers benefited from a significant moderation in cost pressures during August. The rise in input costs slowed sharply, which encouraged manufacturers to increase their raw material purchases to build safety stocks. Despite this moderation in input costs, the rate of output price inflation decelerated to a lesser extent, allowing manufacturers to expand their profit margins.
“On a positive note, the rise in input costs slowed sharply. Manufacturers increased their raw material buying activity to build safety stocks. 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,” Bhandari added.
Job Creation and Business Confidence
The survey also noted that job creation in the manufacturing sector softened midway through the second fiscal quarter. Some firms trimmed their headcounts, leading to a slower rate of employment growth. However, the overall employment growth rate remained solid when viewed in the context of historical data.
Business confidence also took a hit, with panelists expressing the lowest level of optimism since April 2023. “Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns,” Bhandari explained.
Economic Growth Slows
In a broader economic context, India’s overall economic growth slowed to a 15-month low of 6.7% in the April-June quarter of the 2024-25 fiscal year. The slowdown was primarily due to weaker performance in the agriculture and services sectors, as highlighted by government data released on Friday.
The combination of softer growth in manufacturing and slower overall economic expansion presents challenges for the Indian economy as it navigates through competitive pressures and inflationary concerns. Manufacturers and policymakers alike will need to carefully monitor these trends as they plan for the coming months.
