India's Manufacturing Activity Eases Slightly in July: HSBC PMI Report
Manufacturing Sector Shows Resilience Despite Slight Dip
India's manufacturing activity experienced a slight decline in July, attributed to softer increases in new orders and output. This follows a period of recovery in June after reaching a three-month low in May.
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According to the HSBC final India Manufacturing Purchasing Managers Index (PMI), compiled by S&P Global, the PMI stood at 58.1 in July, slightly lower than June's 58.3. Despite this decrease, the index has consistently remained above its long-term average and the 50-point mark, indicating continued expansion for nearly three years.
Continued Growth Amid Softer Increases in New Orders and Output
"India's manufacturing sector continued to post impressive growth in July, despite slightly softer increases in new orders and output. Key positive developments included one of the fastest expansions in international sales for over 13 years and another robust round of job creation," the report noted. The sustained growth highlights the sector's resilience and ability to maintain momentum even amidst slight fluctuations in demand and production.
Economic Outlook and Monsoon Predictions
The Reserve Bank of India (RBI) has revised its FY25 GDP growth forecast from 7% to 7.2%, driven by improved rural and urban demand and predictions of a normal monsoon. The monsoon forecasts support agricultural output growth, with the government's robust capital expenditure, strong investment demand, and positive consumer and business sentiment bolstering economic resilience. However, geopolitical tensions and divergent monetary policies of major central banks introduce uncertainties.
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Inflation Concerns and Monetary Policy
The RBI's Monetary Policy Committee maintained the benchmark rate at 6.25% during its June meeting. Retail inflation, which rose to a four-month high of 5.08% in June due to higher food prices, poses a challenge for policymakers aiming to reduce interest rates. Food inflation, accounting for nearly 40% of the consumer price basket, remains a critical factor in inflationary trends.
International Sales and Cost Pressures
The PMI report highlighted that Indian goods producers raised selling prices to protect margins from cost increases. Firms cited higher raw material fees, increased labor costs, and strong demand as reasons for adjusting output charges upward.
"Amid reports of strengthening demand from clients based in Asia, Europe, North America, and the Middle East, Indian manufacturers experienced a robust increase in international sales during July," the report added.
Conclusion
Despite a slight dip in manufacturing activity in July, India's manufacturing sector remains resilient, demonstrating strong growth driven by international sales and robust job creation. However, rising input costs and inflationary pressures continue to pose challenges, necessitating careful monitoring by policymakers and industry stakeholders.
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