India’s manufacturing sector growth slows slightly in April, yet remains robust amid strong demand

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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April’s business survey revealed a slight deceleration in India’s manufacturing sector growth, though it remained robust due to strong demand, prompting firms to increase raw material purchases at a near-record pace.

The final India Manufacturing Purchasing Managers’ Index (PMI) by HSBC, compiled by S&P Global, dipped to 58.8 in April from a 16-year high of 59.1 in March. Despite this dip, it remained above its long-term average and in expansionary territory for the 34th consecutive month, with the 50-mark separating growth from contraction.

As the fastest-growing major economy in Asia, India relies on strong consumption to sustain its growth trajectory, with GDP expected to expand by 6.5% this fiscal year.

Pranjul Bhandari, chief India economist at HSBC, noted, “April’s manufacturing PMI recorded the second-fastest improvement in operating conditions in three-and-a-half years, bolstered by strong demand conditions.”

Although output and new orders sub-indexes eased from March, they still marked the second-best readings in over three years, signalling sturdy demand. International demand was somewhat weaker but remained healthy.

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Business optimism improved as firms anticipated buoyant demand and higher production volumes in the coming year, leading to increased hiring for the second consecutive month.

The uptick in hiring offers some relief to the government, which has faced lacklustre job growth.

With firms gearing up for increased production, they accumulated raw material stocks at the third-fastest rate since the survey began over 19 years ago.

However, high demand pushed up both input and output prices, though the increase was small and unlikely to push inflation beyond the central bank’s target range of 2-6%.

“On the price front, higher costs of raw materials and labour led to a modest uptick in input costs, but inflation remains below the historical average,” Bhandari said. “Firms passed these increases onto consumers through higher output charges, as demand remained resilient, resulting in improved margins.”

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow