India’s manufacturing sector experienced a robust rebound in activities, reaching a 31-month high in May 2023, according to the S&P Global India Manufacturing Purchasing Managers’ Index (PMI). New orders and favourable market conditions were the driving forces behind this impressive growth. The seasonally adjusted PMI rose from 57.2 in April to 58.7 last month, signalling the strongest improvement in the sector’s health since October 2020.
The surge in output, which was the sharpest and fastest in recent months, follows a day after the release of strong GDP growth data. The data revealed a significant revival in manufacturing growth, with a year-on-year growth of 4.5% in Q4 FY2023. This growth was attributed to increased manufacturing volumes and improved margins, partly due to a sustained moderation in input costs.
The S&P PMI index for May showcases encouraging developments, with remarkable strength in demand conditions. Factory orders rose at the fastest pace since January 2021, setting the stage for increased production, employment, and quantities of purchases. Additionally, exports played a vital role in driving new orders, with companies experiencing the quickest expansion in international sales in six months. Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, highlighted the positive impact of the PMI’s findings on the Indian economy. She emphasised that the upturn in domestic orders strengthens the country’s economic foundations, while rising external business fosters international partnerships and enhances India’s position in the global market. The May data revealed a sharp and accelerated increase in quantities of purchases, reaching the strongest level in over 12 years. Survey members attributed this expansion to ongoing increases in new business and efforts to replenish stocks. Factory orders increased for the 23rd consecutive month, marking the greatest extent since January 2021. Advertising, demand strength, and a favourable economic climate were identified as the driving factors behind this upturn. Indian manufacturers responded to growing new orders and favourable market conditions by scaling up production volumes. With supply chain conditions improving, monitored companies reported a record accumulation in input inventories.
Additionally, rising inflows of new business placed pressure on goods producers’ capacity, leading to an uptick in outstanding business. While the rate of backlog accumulation was slight, it was the quickest in seven months. Cost pressures remained historically mild, but demand strength facilitated a solid and quicker increase in output charges. In contrast to the trend for input costs, selling prices rose at a solid and accelerated rate in May, reaching a one-year high. Panellists attributed this inflationary trend to sustained increases in input costs and a supportive demand environment, prompting them to raise their charges. De Lima emphasised that the record increase in input stocks reflects manufacturers’ improved supply chain management, which should help mitigate potential disruptions and maintain a steady flow of production, demonstrating the industry’s resilience. The PMI survey also revealed that capacity pressures supported job creation, reaching a six-month high midway through the first fiscal quarter. Goods producers reported an improvement in vendor performance, thanks to smoother logistics that contributed to a softer increase in input prices during May.
