India’s factory output growth slips to 3-month low in August

New Delhi: India’s manufacturing sector growth declined to a three-month low in August due to low demand even as competitive pressure and inflation concerns hampered business confidence, an industry survey conducted by S&P Global showed on Monday.

Purchasing Managers’ Index (PMI) for manufacturing declined to 57.5 in August from 58.1 in the previous month. However, it is still higher than the long-term average of 54. The PMI print above 50 indicates growth in the sector while below 50 shows contraction.

“The Indian manufacturing sector continued to expand in August, although the pace of expansion moderated slightly,” said Pranjul Bhandari, Chief India Economist at HSBC.

Pace of expansion of new businesses declined to a seven-month low in August. “Competitive conditions reportedly dampened growth,” S&P Global said in its monthly report, which is based on a survey conducted among around 400 manufacturers spread across India.

Overseas demand was also subdued. New export orders increased at the weakest pace since the start of the 2024 calendar year. Yet, one-in-ten firms noted an improvement in international sales, which they associated with stronger demand from Asia, Africa, Europe and the US.

Input cost inflation declined to a five-month low. Despite the slowdown in cost pressures, manufacturers increased selling price, benefitting from demand resilience. Rate of selling price inflation in August was the second-fastest in 11 years. This led to increased margins for manufacturers.

“Manufacturers increased their raw material buying activity in order to build safety stocks. In line with input costs, the pace of output price inflation also decelerated, but the deceleration was to a much smaller extent, thereby increasing margins for manufacturers,” Bhandari said.

Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns,” said Bhandari. In August, the business outlook for the year ahead declined to the lowest level since April 2023.

Job creation softened midway through the second fiscal quarter as a few firms trimmed headcounts during the month under review.

Business confidence retreated, but firms scaled up buying levels in a bid to safeguard against input shortages. “The latest upturn in pre-production inventories was one of the strongest seen in 19-and-a-half years of data collection,” S&P Global said.

Some companies that participated in the survey suggested that fierce competition and shifts in consumer preferences negatively impacted output at their units.