The Indian manufacturing sector showed continued resilience in July, according to a private business survey conducted by S&P Global. Although the pace of expansion slowed for the second month, overall growth remained healthy, reflecting the strong fundamentals of Asia’s third-largest economy.
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A slowdown in Output and New Orders
The Manufacturing Purchasing Supervisors Index (PMI) for India, compiled by S&P Global, declined marginally to 57.7 in July from 57.8 in June. Still, the reading beat a Reuters poll’s expectation of 57.0 and remained above the 50 mark for the index, which separates expansion from contraction, for two straight years.
India Outperforms Other Major Producers
Despite declining manufacturing activity in other major economies, India’s manufacturing sector has emerged as one of the best performers globally. The performance was attributed to the sector’s ability to buck the weak demand trend in other parts of the world. Andrew Harker, director of economics at S&P Global Market Intelligence, noted the continued growth momentum in the Indian manufacturing sector, with production lines operating powerfully on the back of strong new order growth.
Strong New Orders and Overseas Demand Boost Exports
In July, new orders in the Indian manufacturing sector remained strong, while output growth slowed to a three-month low but remained stable. Additionally, overseas demand played a crucial role in boosting exports, with export growth reaching its fastest pace since November.
Optimistic About the Future and Increased Employment
Despite some moderation, the future outlook for the manufacturing sector remains optimistic. Companies expect activity to remain high in the coming year, as indicated by a high Future Output sub-index of 65.3. That positivity encouraged firms to hire more workers in July, continuing a trend of solid employment expansion. Capacity pressure has indicated increased employment, and this trend is likely to continue if demand remains strong in the coming months.
Inflationary Pressures and Uncertainty
The survey also highlighted concerns about inflation. Input values rose the fastest since October, pushing up output prices. However, the rate of output value growth was slower than in the previous month, indicating uncertainty around inflation. In June, annual retail inflation in India rose to 4.81 percent, ending four months of moderation. Market members expect the Reserve Bank of India to keep its key policy rate high for a prolonged period to counter these inflationary pressures.
Despite some contraction in production and new orders, India’s manufacturing sector showed resilience in July and continued to grow. The sector outperformed other major global producers, and new solid orders and overseas demand contributed to favorable export performance. The optimistic outlook encouraged companies to increase employment, while inflationary pressures raised concerns. The positive performance of the manufacturing sector indicates that India’s economy is vital, which bodes well for prospects.