India’s manufacturing activity eases to a three-month low in August

New Delhi: India’s manufacturing activity eased to a three-month low in August amid a moderate increase in new business and production, according to a private survey released on Monday.

The HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, came in at 57.5 in August, down from 58.1 in July. The figure stood at 58.3 in June, 57.5 in May, and 58.8 in April.

The August reading was slightly lower than the flash projection of 57.9 released last month. However, the index has remained above both its long-term average and the 50-point mark for nearly three years. This mark separates contraction from expansion.

The index is based on responses to questionnaires sent to around 400 manufacturers.

"Indian manufacturers registered softer increases in new business and output during August, albeit with rates of expansion remaining elevated by historical standards," the report said.

"Business confidence retreated, but firms scaled up buying levels in a bid to safeguard against input shortages. ," it added.

Cost pressure 

The report said moderation in cost pressures supported the rise in purchasing activity in August as the rate of input price inflation softened to the slowest in five months.

Concurrently, it added that firms could comfortably share additional cost burdens with their clients by lifting selling prices due to demand resilience.

"The Indian manufacturing sector continued to expand in August, although the pace of expansion moderated slightly. New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for the slowdown," said Pranjul Bhandari, chief India economist at HSBC.

"Nevertheless, all three indicators remain well above their historical averages. On a positive note, the rise in input costs slowed sharply," she added.

Bhandari said manufacturers increased their raw material buying activity to build safety stocks while the pace of output price inflation also decelerated, but the deceleration was smaller, increasing margins for manufacturers.

"Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns," she added.

Monsoon forecast

The Reserve Bank of India (RBI) has raised its FY25 GDP growth forecast from 7% to 7.2% due to improved rural and urban demand and predictions of a normal monsoon.

However, the report pointed out that while goods producers benefited from a moderation in cost pressures during August, purchasing prices still rose but did so to the weakest degree in five months.

"With input cost inflation receding, goods producers sought to rebuild safety stocks by purchasing additional raw materials and semi-finished goods," it said.

"The rate of input buying growth was sharp and the strongest since April," it added.

The RBI's Monetary Policy Committee kept the benchmark rate at 6.5% at its meeting in August.

Retail inflation based on the consumer price index (CPI) rose by 3.54% in July, its lowest in 59 months, according to data from the Ministry of Statistics and Programme Implementation (MoSPI).

“Despite the slowdown in cost pressures, there was a marked increase in prices charged for Indian goods in August. The rate of inflation was the second-fastest in close to 11 years," the latest PMI report said.

"Finally, competitive pressures and inflation concerns hampered business confidence in August," it added.

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