India’s manufacturing growth hits 8-month high in March—but export gains lag

India’s manufacturing sector expanded at its fastest pace in eight months in March, driven by strong demand and a sharp rise in output, according to a private survey released Wednesday.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, rose to 58.1 in March from 56.3 in February and 57.7 in January. The index was 56.4 in December and 56.5 in November. A reading above 50 indicates expansion.

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"The latest reading showed a substantial improvement in the health of the (manufacturing) sector that was above its long-run average," the survey said. “March saw total sales expand to the greatest extent since July 2024, with companies remarking on positive customer interest, favourable demand conditions and successful marketing initiatives.”

Despite strong domestic demand, manufacturing export growth slowed to a three-month low, though gains were recorded in Asia, Europe, and West Asia.

"India registered a 58.1 manufacturing PMI in March, up substantially from 56.3 during the previous month. Although international orders slightly slowed, overall demand momentum remained robust, and the new orders index recorded an eight-month high of 61.5," said Pranjul Bhandari, chief India economist at HSBC.

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Rising demand led firms to dip into inventories, causing the fastest drop in finished goods stocks in over three years. Business sentiment remained upbeat, with about 30% of firms expecting higher output over the next year, compared to less than 2% anticipating a decline, Bhandari added.

India’s economic growth rebounded in the December quarter after a slowdown in September but remained below the previous fiscal year’s pace. GDP grew 6.2% in Q3 FY25—the slowest since Q4 FY23, except for Q2 FY25’s revised estimate of 5.6%.

For FY25, GDP growth is projected at 6.5% by the National Statistics Office (NSO). A back-of-the-envelope calculation suggests GDP growth will have to average 7.6% in the final quarter of the year to align with the NSO's second advanced estimate.

Manufacturing output rose 3.5% in Q3FY25, up from 2.1% in the prior quarter but significantly below the 14% and 7.5% recorded in Q4FY24 and Q1FY25, respectively. Its sluggish growth weighed on overall GDP expansion.

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"Meanwhile, pre-production inventories rose sharply in March, and at the quickest pace in five months," the survey said. "Finally, favourable demand conditions, better customer relations and projects pending approval underpinned upbeat forecasts for output levels in the coming 12 months," it added.