‘Fierce competition’ affected the manufacturing sector to some extent in August, as the Purchasing Managers’ Index (PMI) slipped to 57.5 from 58.1 in July. However, it is still higher than long-term average of 54, but there is no good news on the job front.
“The Indian manufacturing sector continued to expand in August, although the pace of expansion moderated slightly. New orders and output also mirrored the headline trend, with some panellists citing fierce competition as a reason for the slowdown,” Pranjul Bhandari, Chief India Economist at HSBC, said. Nevertheless, all three indicators remain well above their historical averages, she added.
PMI is prepared based on responses from purchasing managers of 400 firms. An index above 50 indicates expansion, while an index below 50 signifies contraction. The index is released ahead of official data and provides some indication of the manufacturing sector. With a share of around 17-18 per cent in GVA (Gross Value Added), the manufacturing sector is considered the biggest job multiplier.
Based on the responses from panellists, the survey report mentioned that job creation softened midway through the second fiscal quarter as a few firms trimmed headcounts. However, the overall rate of employment growth remained solid in the context of historical data.
As there was overall moderation in price levels, manufacturers also experienced some relief. According to the report, goods producers benefited from a reduction in cost pressures during August. Purchasing prices still rose but did so at the weakest rate in five months. Firms that observed an increase cited higher costs for leather, mineral, and rubber. With input cost inflation receding, goods producers sought to rebuild safety stocks by purchasing additional raw materials and semi-finished goods. The rate of input buying growth was sharp and the strongest since April, the report said.
“On a positive note, the rise in input costs slowed sharply. 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.
Still, there were some issues. Despite the slowdown in cost pressures, there was a marked increase in prices charged for Indian goods in August. The rate of inflation was the second-fastest in nearly 11 years. Firms reportedly passed additional cost burdens onto their clients amid resilient demand. These factors affected optimism, as the report emphasised that competitive pressures and inflation concerns hampered business confidence in August. Panellists were at the least optimistic since April 2023, the report added.
“Business outlook for the year ahead moderated slightly in August, driven by competitive pressures and inflation concerns,” Bhandari concluded.