According to a recent survey, India’s Manufacturing sector expanded at a slower rate than in February, this marked the slowest growth in four months. The manufacturing sector remained relatively strong despite higher inflation pressure and rising borrowing cost due to buoyant domestic demand.
This is reflected in the Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, which dipped to 55.3 in February from January’s 55.4 but remained above the 50-mark separating expansion from contraction for the 20th straight month. The PMI was higher than a Reuter’s poll expectation of 54.3.
The Data showed a weakness in exports as the manufacturing sector shrank 1.1 % in the quarter year-on-year which is the second straight contraction. However, the Indian Economy expanded 4.4% last quarter year-on-year from 6.3% in the previous Qtr. If we consider the data then the growth is slower than what was predicted by a Reuters poll which is 4.6%. The weakness in manufacturing and rising borrowing costs have slowed down the Indian economy.
The Input cost inflation continues to rise, with firms predicting higher prices for electronic components, energy, foodstuff, metals, and textiles. However, it stayed below the long-run average. Nevertheless, a vast majority of firms decided not to pass on the extra costs to clients in an attempt to boost sales. If firms do opt to pass on the burden, inflation, which was above the Reserve Bank of India’s (RBI) inflation target of 2%-6% for almost all of 2022, could remain elevated and push the RBI to tighten further.
The RBI has already hiked the repo rates by 250 basis points since may last year and is expected to pause after its February meeting. Despite these efforts the inflation still rose to 6.52% in January and the repo rate will now peak at 6.75% in April from 6.50% currently, according to a Reuters poll taken last week. The survey also stated that businesses are reluctant to employ people and job creation was only marginally up. “Job creation failed to gain meaningful traction, however, as firms reportedly had sufficient staff to cope with current requirements,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.
firms were optimistic about the resiliency of demand and continued to add to their inventories, indicating that they expect strong domestic demand to continue.
In conclusion, the survey found that India’s manufacturing sector expanded at a slower pace in February, but remained relatively strong due to buoyant domestic demand. The slow growth in the manufacturing sector and rising inflationary pressures have slowed down the Indian economy, which expanded 4.4% last quarter year-on-year. Input cost inflation continued to accelerate, but a vast majority of firms decided not to pass on the extra costs to clients in an attempt to boost sales. The RBI has already hiked the repo rate and is expected to hike it further to combat inflation. Despite the challenges faced by the Indian economy, firms were optimistic about the year-ahead outlook on strong demand predictions.