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Business News/ Economy / India's manufacturing hits a 16-year high in March
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India's manufacturing hits a 16-year high in March

India's manufacturing PMI improved to 59.1 in March from 56.9 in February, reflecting stronger growth of new orders and renewed job creation. Growth of new orders accelerated to the quickest in nearly three-and-a-half years during March.

India's manufacturing output rose for the 33rd month running in March, and to the greatest extent since October 2020. (Bloomberg)Premium
India's manufacturing output rose for the 33rd month running in March, and to the greatest extent since October 2020. (Bloomberg)

Propelled by new orders, upturn in inventories and higher job creation, India’s manufacturing activity hit a 16-year high of 59.1 this March, a survey by S&P Global said on Tuesday. The last time a reading of this level was recorded was in February 2008, when the HSBC India Manufacturing Purchasing Managers’ Index (PMI) had touched a high of 59.5.

Despite the high, the number came a tad lower than HSBC’s own projection of 59.2, mentioned in its Flash India Manufacturing PMI last month.

“The results for March provided a mixed picture regarding the outlook for the Indian manufacturing sector," the survey report said. “Companies remained confident on average, with 28% forecasting output growth in the year ahead and 1% expecting a contraction."

“India’s March manufacturing PMI rose to its highest level since 2008. Manufacturing companies expanded hiring in response to strong production and new orders," Ines Lam, an economist at HSBC, said in the report, which is based on a survey of 400 manufacturers.

In February, the HSBC manufacturing PMI stood at 56.9; it was 56.5 in January, recovering from an 18-month low of 54.9 last December. A reading above 50 separates expansion from contraction.

The March report noted that growth of new orders accelerated to the quickest in nearly three-and-a-half years, amid reports of buoyant demand conditions. There was also good growth in output and input stocks, as well as renewed job creation.

According to the survey, new orders came from both domestic and export markets. New export orders, which increased at the fastest pace since May 2022, reflected better sales to Africa, Asia, Europe and the US, the survey said.

Economists aren't reading too much into the data. According to Pronab Sen, former chief statistician of India, the latest PMI manufacturing data will not impact the the GDP growth projections for FY24 and FY25, as the survey is based on a very small sample size, which doesn't represent the manufacturing sector as a whole.

“I don't think the PMI (survey) is a very accurate way to measure the manufacturing capabilities of the country. It's more of an opinion poll," he added.

The second advance estimate released by the statistics ministry in late February has pegged India’s economy to expand 7.6% in FY24 amid strong investment growth in plant and machinery, robust manufacturing growth, and a slight improvement in trade, even as consumption and government spending saw a slower pace than previously estimated. In January, the ministry had forecast a 7.3% growth in the fiscal.

The latest PMI numbers showed that manufacturing output rose for the 33rd month running in March, and to the greatest extent since October 2020.

“Growth quickened across the consumer, intermediate and investment goods sectors," the survey said. “As was the case for new orders, the steepest expansion in production was seen at investment goods makers." Investment goods refer to capital goods, which are tangible assets such as buildings, machinery and equipment used to produce consumer goods or services, usually the end product of production and manufacturing.

As things stand, India aims to grow into a $10 trillion economy over the next decade, fuelled by manufacturing growth.

India's push for manufacturing growth is expected in sunrise sectors such as semiconductors, electronics manufacturing, electric vehicles ecosystem, renewable energy and defence, according to a recent report by Boston Consulting Group and Matrix Partners.

To this extent, the Centre has stepped up its capex budget in recent years to try and improve the country’s creaking infrastructure, create jobs, and push manufacturing to accelerate economic growth.

The government has also announced production linked incentive (PLI) schemes across 14 key sectors in 2020 with an outlay of 1.97 trillion (over $26 billion) for a period of five years starting 2021-22 to enhance manufacturing capabilities.

The Centre's capital expenditure on infrastructure projects was raised to 11.11 trillion for the financial year starting 1 April 2024.

Meanwhile, industrial output growth rose to 3.8% in January, remaining unchanged from December, after falling to an eight-month low of 2.4% in November, and consumer price index (CPI)-based retail inflation fell to a four-month low of 5.09% in February, according to the latest official data.

The latest retail inflation number is within the tolerance band of 2-6% of the Reserve Bank of India. However, the central bank is expected to stand pat on policy rates, a tool to control inflation, during the final quarter of the current fiscal year.

The Centre’s expectations for India’s economic growth in fiscal year 2023-24 at 7.6% exceeds the central bank’s projection of 7%, with India remaining the fastest-growing major economy in the world, aided by a rise in manufacturing.

“Planned marketing, new product enquiries and buoyant demand were all cited as reasons for optimism," the survey said. “The overall level of sentiment remained elevated but slipped to a four-month low as inflation concerns weighed on confidence."

 

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ABOUT THE AUTHOR
Rhik Kundu
Rhik writes about the Indian economy and its crucial indicators. He is constantly navigating corporates, decoding policies, and dabbling with everything in between.
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Published: 02 Apr 2024, 10:50 AM IST
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