On the strength of increased production and fresh orders, India’s manufacturing sector grew in March at its fastest rate in three months. But businesses cut staff for the first time in over a year. Furthermore, while production increased at the fastest rate since December, input cost inflation decreased. Data from March showed that new orders made with Indian manufacturers continued to increase. In addition, the growth rate was rapid and the fastest in three months. Businesses claimed that marketing initiatives were successful. As development drivers, resilient demand and competitive pricing were also mentioned. Another increase in production was supported by continued improvements in overall sales volumes. The rate of output growth was faster than it had been since last December and was higher than the long-term norm.
As new export orders rose in March, so did the demand for Indian products abroad. However, the increase in new export sales was muted compared to earlier levels. Though, more positive news for policymakers came as input cost inflation slowed to its second-lowest level in 2.5 years. Due to this, producers increased the amount of raw materials and semi-finished products in their inventory at one of the fastest rates in more than 18 years.
S&P Global’s Manufacturing Purchasing Managers’ Index increased from 55.3 in February to 56.4 in March, staying above the 50-point line dividing growth from contraction for the 21st consecutive month.
However, businesses did pass on some of the higher labour and raw material costs to consumers, which over the following months resulted in higher retail inflation. Additionally, firms expressed worries about general inflation and competitiveness, which decreased their optimism about future production. Despite these difficulties, it is anticipated that the Indian economy will expand by 6.9% this fiscal year and 6.0% the following. The third-largest economy in Asia, India, is better equipped than most to withstand the effects of a possible global downturn.
The labour market situation deteriorated, returning to contraction for the first time in 13 months, albeit at a slow rate of job loss. Due to worries about competitiveness and general inflation, future production optimism hit an eight-month low.
According to a press release from Pollyanna De Lima, associate director of economics at S&P Global Market Intelligence, the underlying market for Indian goods was still strong in March. As a result, businesses increased their stock-building efforts while production continued to grow rapidly. De Lima notes that although manufacturers were optimistic about upcoming new orders, they were less so about the likelihood that inflation would continue to decline. This limited their ability to be upbeat about the outlook for output.
The overall demand indicator, the new orders sub-index, increased last month, and foreign demand grew more rapidly than it did in February. Although the rate of input cost inflation dropped to its second-lowest level in two and a half years, businesses still passed some of the strains of rising labour and raw material costs onto consumers. The sub-index for output values increased from 51.8 to 52.0. As a result, store inflation will probably continue to be high in the upcoming months. According to a Reuters poll, inflation was predicted to stay above the Reserve Bank of India’s medium-term target of 4.0% and average 6.7% this fiscal year before slowing to 5.2% the following.
The increase in manufacturing activity could lift the spirits of policymakers who have seen the industry fall by the wayside while services activity has reached new highs in recent months.
