What explains the resilience of Indian manufacturing

How is India’s manufacturing faring?

It is robust. The PMI, which measures the state of manufacturing through the prism of purchasing managers, was at 57.8 in June, slightly lower than 58.7 in May (which was a 31-month high). A PMI of above 50 means expansion or growth compared to the previous month while lower than 50 means contraction. In what is seen as a clear sign of resilience in India’s factory sector, the manufacturing PMI has been above 50 for 24 straight months. This performance has led to an increase in business confidence and optimism around future business activity among the industry.

How credible is PMI as an index?

PMI is seen as a significant measure of manufacturing (it also measures the services sector) the world over as it is elaborate and frequent. It surveys purchasing managers in 500 manufacturing companies (in India across 19 industries). Conducted monthly since March 2005, it tracks five major areas — new orders, output, employment, suppliers’ delivery time and stock of items purchased. It helps analysts and economists to correctly anticipate the changing economic trends in GDP, inflation, employment and industrial production. S&P Global, a financial information and analytics firm, compiles the index in India.

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What is driving India’s strong show?

Factory output is the highest in 18 months and hiring has grown for the last 3 months.

Strong demand both within India and outside meant sharp improvements in production, sourcing and recruitment. Experts attribute this to government spending, especially capital expenditure, and a strong rebound in private consumption which in FY23 grew by 7.5%.

What does this mean for the economy?

Strong manufacturing is critical for India to post a high GDP growth. The surprisingly high clip of 6.1% in Q4 of the last fiscal came on the back of a 4.5% growth in manufacturing, which had contracted in the earlier quarters. A high manufacturing PMI in the first three months of FY24 indicates a manufacturing rebound in FY24 after a 1.3% contraction in FY23. The flip side is higher inflation and wage costs. But demand is high, enabling companies to pass on higher costs to consumers.

How are other economies faring?

Most large economies are struggling. China’s June PMI at 50.5 was lower than May’s 50.9. Manufacturing business confidence is at an 8-month low. It is also battling declining export demand and falling employment despite efforts by its central bank to stimulate the economy. The Euro zone saw a PMI of 43.4 in June compared to 44.8 in May indicating further contraction. The US registered a PMI of 46.3 in June (a six-month low) compared to 48.4 in May. In the UK too the contraction worsened.

Updated: 05 Jul 2023, 01:00 AM IST