Introduction
Recent data released on October 1 reveals a noticeable decline in India’s manufacturing activity, as indicated by the HSBC India Manufacturing Purchasing Managers’ Index (PMI). The figures dropped from 57.5 in August to 56.5 in September 2023, highlighting growing concerns over weak export demand and a reduction in production levels. This downward trend is significant given that the PMI has maintained a position above the long-term average for the current financial year.
Current Manufacturing Landscape
According to Pranjul Bhandari, HSBC’s chief India economist, the manufacturing sector experienced a slowdown amid previously strong growth trends seen during the summer months. Both production output and new orders have slowed, with the New Export Orders PMI falling to its lowest since March 2023. This change indicates a troubling shift in demand dynamics.
Quarterly Performance Overview
In the second quarter of 2023, the Manufacturing PMI averaged 57.4, marking the lowest reading since October-December 2022. The decrease in export activity, which saw a 9.4 percent decline in August, impacting total exports to $34.71 billion, has also contributed to the slowdown in production activities across various sectors.
Cost Pressures and Employment Challenges
On top of low demand, pressures on production costs are rising. According to a survey of 400 manufacturing firms, there has been a marked increase in the costs of essential materials such as chemicals, packaging, plastics, and metals. Despite these pressures, the increase in output charges has been the slowest in five months, as companies are hesitant to transfer these costs onto consumers. This scenario could negatively affect margins and profitability, potentially leading to reduced hiring activities.
Business Confidence and Future Outlook
The current economic landscape has contributed to declining business confidence, with the future outlook for manufacturers deteriorating to its lowest in 18 months. The survey indicates that only 23% of manufacturers anticipate an increase in production over the next year, suggesting a general sentiment of caution among industry players.
Infrastructure Sector Performance
In addition to the soft manufacturing figures, India’s infrastructure sector is also underperforming. The output of eight major industries saw a 1.8% decline in August, marking a first in nearly four years. Furthermore, government capital expenditure in August was reported to be 30% lower than in the previous year. While this reduction may help curb the fiscal deficit, economists warn that increased government spending will be essential for driving GDP growth moving forward.
| Indicator | September 2023 | August 2023 | Decline |
|---|---|---|---|
| Manufacturing PMI | 56.5 | 57.5 | 1.0 |
| New Export Orders PMI | Lowest since March 2023 | — | — |
| Total Exports | $34.71 billion | Year-over-year decline of 9.4% | — |
| Infrastructure Output | -1.8% | — | First decline in four years |
