India’s manufacturing PMI hits 31-month high in May

India's manufacturing PMI painted a notably positive picture for the sector in May. The S&P Global India Manufacturing Purchasing Managers’ Index rose from 57.2 in April to 58.7 in May on strong demand, according to Reuters reports. 

It remained above the 50-mark separating growth from contraction for the 23rd consecutive month. Over the past few quarters, the manufacturing sector has witnessed solid growth which has been one of the primary drivers of India's economy. 

However, regional peers such as China, Japan, and South Korea have seen their manufacturers struggle for prolonged periods. 

Pollyanna De Lima, economics associate director at S&P Global said, “While the upturn in domestic orders strengthens the foundations of the economy, rising external business foster international partnerships and boost India's position in the global market.”

“Demand-driven inflation is not inherently negative, but could erode purchasing power, create challenges for the economy and open the door for more interest rate hikes,” De Lima added. 

The report also revealed that the sector also generated more employment opportunities in May this year. 

Last quarter, Asia's third-largest economy expanded at an annual pace of 6.1%, well above a Reuters poll forecast of 5% and faster than the 4.5% rate in the October-December quarter. 

The PMI also showed that the new orders expanded at the quickest pace since January 2021, while foreign demand grew at its fastest rate in six months. Higher orders saw the number of purchases of items accelerating at the highest pace in over 12 years, Reuters reported. 

In March, India's factory output growth slowed to a five-month low of 1.1%, a sharp decline compared to 5.8% in February 2023, as slowing demand globally and inventory glut reduced the pace of manufacturing in the country.

Economists also expressed concern over slowing manufacturing growth, stating that domestic consumption demand going forward would be crucial given that external demand is likely to remain weak.

(With Reuters inputs)