India's Manufacturing Growth Slows To 3-Month Low
Despite the slowdown, the index remained above its long-run average and has been in expansionary territory for nearly three years
India’s manufacturing sector growth decelerated in May due to reduced working hours amid heatwave conditions, according to a report by S&P Global released on 3 June.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to a three-month low of 57.5 in May from 58.8 in April. The index stood at 58.4 for May. A PMI reading above 50 indicates expansion, while below 50 signals contraction. Despite the slowdown, the index remained above its long-run average and has been in expansionary territory for nearly three years.
"Companies indicated that working hours had been reduced amid an intensive heatwave, which somewhat hampered production volumes. New orders also rose at a softer pace, but international sales increased to the greatest extent in over 13 years," S&P Global stated.
Maitreyi Das, Global Economist at HSBC, noted, “The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed, led by a softer rise in new orders and output. Panellists cited heatwaves as a reason for lower work hours in May, which may have affected production volumes. In contrast, new export orders rose at the fastest pace in over 13 years, with broad-based demand across geography.”
On the price front, higher raw material and freight costs led to a rise in input prices. Manufacturers were only able to pass on part of this increase to consumers, resulting in a squeeze on manufacturing margins. However, Das highlighted a positive sentiment: “May recorded the highest level of positive sentiment among manufacturing firms in just under a decade, resulting in increased job creation.”
GDP Performance
India's GDP for Q4 FY2023-24 came in at 7.8 per cent, driven by strong growth in the manufacturing sector. The economy grew by 8.2 per cent for the full year FY24, surpassing estimates.
Sectoral Growth
According to data from the National Statistical Office (NSO) released on May 31, the real gross value added (GVA) grew at 7.2 per cent in 2023-24, up from 6.7 per cent in 2022-23. The manufacturing sector, which experienced a growth of 9.9 per cent in 2023-24, played a significant role in this expansion. The primary sector, including agriculture and mining, grew at 2.1 per cent annually, with agriculture at 1.4 per cent and mining at 7.4 per cent.
The secondary sector, encompassing manufacturing, electricity, and construction, grew by 9.7 per cent year-on-year. The construction sector matched the manufacturing sector with a growth rate of 9.9 per cent, while electricity grew by 7.5 per cent.
The Indian economy’s growth trajectory, bolstered by robust manufacturing and construction sectors, has propelled it to USD 3.5 trillion, setting the stage for achieving the USD 5 trillion target in the coming years. The government attributed the GVA growth to significant improvements in the manufacturing and mining sectors, reinforcing India's position as a rapidly growing economy.
