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May 2, 2024

India’s Manufacturing Growth Slows Slightly in April, PMI at 58.8, but Demand Remains Strong

India’s manufacturing sector witnessed a marginal slowdown in growth during April, with the Purchasing Managers’ Index (PMI) dipping to 58.8, according to data from the HSBC final India Manufacturing PMI, compiled by S&P Global. Despite the slight decline from March’s 16-year high of 59.1, the sector remained robust, buoyed by strong demand which led firms to increase purchases of raw materials at a near-record pace.

As the fastest-growing major economy in Asia, India relies on strong consumption to sustain its pace of growth. The Gross Domestic Product (GDP) is forecasted to expand by 6.5 percent this fiscal year.

Pranjul Bhandari, chief India economist at HSBC, noted that April’s manufacturing PMI recorded the second fastest improvement in operating conditions in three-and-a-half years, driven by robust demand conditions. Output and new orders sub-indexes, though slightly lower than March, still indicated sturdy demand, with international demand remaining solid despite weakening slightly.

Business optimism among firms improved as they anticipated buoyant demand and higher production volumes over the next 12 months. This positive sentiment translated into increased hiring for the second consecutive month, potentially offering relief to the government amidst lackluster job growth, a major post-election challenge according to economists surveyed by Reuters.

To meet rising demand, firms ramped up purchases of raw materials at the third-fastest rate since the survey began over 19 years ago. However, this surge in demand led to higher input and output prices, though the increase was modest and unlikely to push inflation beyond the central bank’s target range of 2-6 percent.

Pranjul Bhandari further explained, “Higher costs of raw materials and labor led to a modest uptick in input costs, but inflation remains below the historical average. However, firms passed these increases onto consumers through higher output charges, as demand remained resilient, resulting in improved margins.”

According to the April Reuters poll medians, inflation is expected to average 4.6 percent this fiscal year, with the Reserve Bank of India (RBI) anticipated to cut its key repo rate in the next quarter.

The manufacturing sector’s performance in April reflects India’s continued economic resilience despite global uncertainties. Strong domestic demand, coupled with optimism among businesses, suggests that the economy remains on a solid growth trajectory, supporting the government’s efforts to boost employment and sustain momentum in key sectors.

Jhumpa Lahiri

Jhumpa Lahiri

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