India's manufacturing sector growth slips to 5-year low in August on slower demand

NEW DELHI: India's manufacturing sector growth slipped to five-year low of 52.8 in August as output and new orders moderated amid softer demand conditions, a monthly survey said on Tuesday.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) declined from 53.5 in July to 52.8 in August, indicating the weakest improvement in the health of the sector for five years.

In the Purchasing Managers’ Index (PMI) parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

The HSBC India Manufacturing Purchasing Managers' Index is a gauge of overall conditions derived from measures of new orders, output, employment, supplier delivery times and stocks of purchases.

Firms reported softer demand conditions, which subsequently led to weaker increases in buying levels and stocks, as well as a mild decline in employment.

"India's final manufacturing PMI slipped to 52.8 in August, extending its decline for a third consecutive month. The output index fell to its lowest level since August 2021, signalling that production is still expanding but at a markedly slower pace," said Pranjul Bhandari, Chief India Economist at HSBC.

New orders continued to grow, though at their weakest pace in five years. Survey respondents linked the slower expansion to difficult market conditions and softer demand for certain products.

Meanwhile, export sales continued to climb, driven by demand from key markets such as Australia, Germany, mainland China, Spain, Thailand, and the US. However, the expansion rate for international orders moderated compared to July.

On the jobs front, manufacturing employment fell for the first time in two-and-a-half years, though the rate of decline was only fractional. Companies that reduced staffing levels mainly cited lower business requirements.

"Employment edged into a mild contraction in August, the first decline after more than two years of job growth. Meanwhile, input cost pressures continued to ease, and manufacturers responded by raising selling prices more modestly," Bhandari said.

On the price front, manufacturers faced higher costs for materials, including steel, and transport, but the overall rate of inflation was moderate and the weakest for six months.

Easing cost pressures allowed companies to temper selling price increases. Consequently, output price inflation rose only marginally, hitting a 45-month low and remaining beneath its long-term average.

Going ahead, business confidence rebounded to a three-month high despite softer current conditions. Around 16 per cent of survey participants forecast higher output over the coming 12 months, while the remainder expect no change from present levels.

"Confidence rose to its highest mark since May, but remained subdued by historical standards," the survey said.

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.

The panel is stratified by detailed sector and company workforce size, based on contributions to GDP.