India's manufacturing sector experienced a slight slowdown in August, with the Purchasing Managers' Index (PMI) dropping to 57.5 from 57.1 in July. However, the index remains well above the long-term average of 54, indicating continued expansion in the sector.
According to Pranjul Bhandari, Chief India Economist at HSBC, the moderation in growth was driven by fierce competition among manufacturers. "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 panellists citing fierce competition as a reason for the slowdown," she said. The PMI is based on responses from purchasing managers of 400 firms, with an index above 50 indicating expansion and below 50 signifying contraction. The manufacturing sector, which accounts for around 17 to 18 per cent of Gross Value Added (GVA), is a significant job creator in the economy.
The survey report mentioned that job creation softened midway through the second fiscal quarter, with a few firms trimming headcounts. However, the overall rate of employment growth remained solid in the context of historical data. Manufacturers experienced some relief from rising costs in August, with input cost inflation slowing to a five-month low.
Firms sought to rebuild safety stocks by purchasing additional raw materials and semi-finished goods, with the rate of input buying growth being the strongest since April. Despite the slowdown in cost pressures, there was a marked increase in prices charged for Indian goods in August, with the rate of inflation being the second-fastest in nearly 11 years. Firms reportedly passed on additional burdens to their clients amid resilient demand.
These factors affected business confidence, with panellists being the least optimistic since April 2023. "Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns," Bhandari concluded.
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