India's manufacturing sector experienced a significant slowdown in March, hitting a four-year low as the HSBC India Manufacturing PMI reveals the impact of rising costs, global uncertainties, and the ongoing conflict in the Middle East on new orders and overall output.
Key Points
- India's manufacturing PMI fell to a four-year low of 53.9 in March, signalling a slowdown in overall business conditions.
- The decline in manufacturing growth is attributed to factors such as cost pressures, fierce competition, market uncertainty, and disruptions related to the Middle East conflict.
- Input costs for manufacturers have increased sharply, particularly for items like aluminium, chemicals, and fuels, leading to concerns about profitability.
- Despite the slowdown, Indian manufacturers saw the strongest expansion in external sales since September, with increased optimism for future production.
- Employment in the manufacturing sector saw the greatest expansion in seven months, indicating continued investment in workforce despite economic headwinds.
India's manufacturing sector growth eased to a four-year low in March as cost pressures, fierce competition, heightened market uncertainty and the war in West Asia led to softer increases in new orders and output, a monthly report said on Thursday.
The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell from 56.9 in February to 53.9 in March, indicating the weakest improvement in overall business conditions in close to four years.
In the PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.
"India's manufacturing PMI eased to 53.9 in March from 56.9 in February, marking its lowest level since June 2022. Disruptions linked to the conflict in the Middle East are reverberating through the global economy and weighing on Indian manufacturers," said Pranjul Bhandari, Chief India Economist at HSBC.
Key Factors Affecting Manufacturing Output
The two largest sub-components of the PMI, new orders and output, rose at the slowest rates since mid-2022, the survey said, adding that growth was curbed by challenging market conditions, cost pressures and the war in the Middle East.
"Output and new orders slowed noticeably, signalling softer demand and greater uncertainty.
"Meanwhile, input costs rose sharply across a broad range of items, including aluminium, chemicals and fuels. For now, firms appear to be absorbing much of the increase, keeping output prices relatively contained," Bhandari said.
Firms faced an intensification of cost pressures, the steepest since August 2022.
But, there was a slower increase in output charges.
The rate of output price inflation receded to a two-year low, curbed by customer-retention efforts and attempts to secure new clients at some firms, the survey said.
"March data saw input prices increase to the greatest extent in over three-and-a-half years.
"Aluminium, chemicals, fuel, jute, leather, fabric, oil, rubber and steel were some of the items reported to be up in price," Bhandari said.
Positive Trends in External Sales and Employment
Indian manufacturers registered the strongest expansion in external sales since last September, with gains noted from clients in Australia, Brazil, Canada, mainland China, Europe, Japan, the Middle East, Turkey and Vietnam.
The survey further noted that Indian manufacturers raised employment to the greatest extent in seven months and became more optimistic towards the year-ahead outlook for production.
The HSBC India Manufacturing PMI is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.
