India's factory activity slows to 3-month low in May
India's manufacturing activity in May dipped to a three-month low due to intense heatwaves causing reduced working hours, as per a survey by S&P Global. The HSBC final India Manufacturing Purchasing Managers's Index (PMI), compiled by S&P Global, fell from 58.8 in April to 57.5 in May, missing the flash projection of 58.4. Despite this decline, the index has stayed above its long-term average and the crucial 50-mark for nearly three years, indicating continued expansion.
Expansion continues despite slowed manufacturing growth
"India's manufacturing sector remained firmly in expansion midway through the first fiscal quarter, despite a mild loss of growth momentum," according to the survey report. New orders increased at a slower pace, but international sales saw their largest rise in over 13 years. "The manufacturing sector remained in expansionary territory in May, albeit the pace of expansion slowed," stated Maitreyi Das, global economist at HSBC.
Rising costs and output charges impact manufacturing margins
The May report highlighted stronger increases in both input costs and output charges, leading to a further upturn in Indian factory production. Despite easing to a three-month low, the rate of increase in manufacturing remained sharp due to new business gains, demand strength, and successful marketing efforts. Higher raw material and freight costs resulted in a rise in input prices, squeezing manufacturing margins as manufacturers could only pass on part of this increase to consumers, according to Das.
Positive sentiment fuels job creation in manufacturing sector
Despite the squeeze in manufacturing margins, May saw the highest level of positive sentiment among manufacturing firms in nearly a decade, leading to increased job creation. India's GDP for fiscal year 2024 expanded at an impressive 8.2%, bolstered by strong growth across key sectors including manufacturing, construction, mining, and services. The Reserve Bank of India (RBI) anticipates real GDP growth to be 7% in FY25.
Government initiatives boost manufacturing capabilities
India aims to grow into a $10 trillion economy over the next decade, driven by manufacturing growth. The government has increased its capital expenditure budget in recent years to improve infrastructure, create jobs, and stimulate economic growth. It has also launched production-linked incentive (PLI) schemes across 14 key sectors with an outlay of ₹1.97 trillion (over $26 billion) for five years starting 2021-22 to enhance manufacturing capabilities.
