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Date: July 26, 2023

India’s manufacturing activity in June indicates sustained expansion 

The manufacturing activity in India slowed down in the month of June from a 31-month high in May. However, the output remained in the growth domain owing to new work orders amidst favourable demand conditions.

  • At 57.8 in June, S&P Global Purchasing Managers’ Index (PMI) indicates an expansion in activity. Although it is lower than May’s 31-month high of 58.7.
  • Demand strength, new client enquiries and marketing efforts have sustained the optimistic forecasts for growth prospects.

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India’s Manufacturing Activity During June 2023

The S&P Global India Manufacturing PMI dropped to 57.8 in June 2023 from May’s 31-month peak of 58.7 (less than market estimates of 58.0). Regarding the PMI, a score above 50 denotes expansion, while a score under 50 indicates contraction.

The expansion in manufacturing activity in June was driven by a jump in new work orders. The international orders had also increased, though at a slower pace than in the previous month. The June Purchasing Managers’ Index (PMI) statistics indicate that overall operational conditions have improved for the 24th consecutive month. 

The positive ‘client interests’ continued to support the manufacturing industry which in turn pushed up the growth in output, employment, quantities of purchases and input stocks. The new client enquiries, strong demand and marketing efforts have together sustained optimistic forecasts about growth prospects.

Production was increased to meet demand at a pace that was the fastest over the past one-and-half years. With capacity pressures being mild, the manufacturers employed additional workers. However, employment increased at a moderate pace that was much similar to May.

During the month, manufacturers raised prices for their buyers. However, their own input costs increased at a rate that was one of the lowest in three years. Consequently, they purchased fresh raw materials at a pace that was second-strongest, over the past 12 years. The manufacturers had adjusted their pricing strategies. The increase in output charges reflected firms’ ability to pass on higher cost burdens to customers while maintaining a competitive edge.

According to Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, “Presented with buoyant demand, manufacturers seized the opportunity to adjust their pricing strategies. The latest increase in output charges reflected firms’ ability to pass on higher cost burdens to customers while maintaining a competitive edge.”

What does this mean?

Although there has been a slight decrease, the overall operating conditions have significantly improved, with positive impacts on various aspects such as sales, production, inventory, and employment. Additionally, output has remained in the growth territory due to an increase in new work orders and strong demand while business confidence has reached its highest level in six months. This indicates a strengthening of demand in the market.

Notably, the PMI has remained above the crucial 50-mark for two consecutive years, indicating expansion rather than contraction in the sector. This sustained growth is a positive sign for India’s manufacturing industry, showcasing resilience and strength despite facing higher inflationary pressures.

The Indian economy is currently enjoying the ‘Goldilocks’ phase, where growth momentum is holding up while inflation has moderated to the mandated target of 4% and the rupee remains stable. In this context, June’s PMI results have again shown that there exists a robust demand for Indian-made products, both in the domestic and international markets.

However, the recent price developments will be a cause of concern to the Reserve Bank of India and the Monetary Policy Committee, which has left the policy repo rate unchanged at 6.5% so far, in 2023-24.

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