India’s manufacturing sector shows resilience, hits 4-month high in january

While slightly lower than the preliminary estimate of 56.9, the final reading comfortably remained above the crucial 50 mark, indicating expansion for the sector. This streak of growth has been ongoing since June 2021, reflecting sustained momentum and economic recovery.

India’s manufacturing industry kicked off 2024 on a high note, registering its fastest expansion in four months in January. According to the HSBC final India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, factory activity surged to a reading of 56.5, up from December’s 18-month low of 54.9.

While slightly lower than the preliminary estimate of 56.9, the final reading comfortably remained above the crucial 50 mark, indicating expansion for the sector. This streak of growth has been ongoing since June 2021, reflecting sustained momentum and economic recovery. Notably, India continues to maintain its position as the fastest-growing major economy, supported by robust government spending.

Despite this positive outlook, the government aims to strike a balance between fiscal prudence and populist measures. As revealed in a separate poll, efforts will be directed towards narrowing the fiscal deficit as a percentage of GDP. The forthcoming budget for the fiscal year 2024/25, set to be unveiled later on Thursday, is expected to navigate these priorities judiciously.

The PMI’s new orders sub-index witnessed a significant uptick, reaching its highest level since September. This surge was propelled not only by domestic demand but also by robust international orders, extending the current expansion streak to over two and a half years. Ines Lam, an economist at HSBC, highlighted that domestic orders outpaced export orders, underlining the strength of the domestic market.

The optimistic outlook for the year ahead prompted manufacturers to ramp up their procurement of raw materials. The future output sub-index surged to a 13-month high, accompanied by the fastest pace of purchasing since September. However, despite the upbeat sentiment, employment levels saw minimal change from December, with firms indicating sufficient capacity to handle existing workloads.

Although input cost inflation reached a three-month high, the rate of increase remained marginal. Firms responded to rising costs by mildly increasing prices charged to clients, passing on some of the additional burden related to raw materials, transportation, and wage costs. This cautious approach comes amid inflation hovering near the upper limit of the Reserve Bank of India’s (RBI) target range of 2-6% in November and December. Analysts anticipate the central bank to maintain its current interest rates until at least July, given the prevailing economic conditions.