India’s manufacturing sector continued to expand in July, but growth slowed to its weakest level in nearly five years.
The HSBC and S&P Global Manufacturing Purchasing Managers’ Index fell to 53.5 from 54.2 in June. This marked the lowest reading since August 2021.
Although the index remained above the key 50-point level that separates expansion from contraction, it also fell below its long-term average of 54.2.
New Order Growth Weakens
The slowdown was mainly driven by weaker increases in new orders, purchasing activity and employment.
New orders grew at their second-slowest pace in more than four years. Manufacturers said advertising campaigns and resilient demand continued to support sales.
However, difficult market conditions and weaker customer interest in several key products limited overall growth.
Export Demand Improves
Export orders provided a more positive signal.
New business from overseas increased at a faster pace than in June. Manufacturers reported stronger demand from Canada, Egypt, Indonesia, Kenya, Nepal, South Africa, Thailand and the United Arab Emirates.
The improvement in foreign orders helped offset some of the weakness in India’s domestic market.
Production Remains in Expansion
Manufacturing output continued to rise in July at a pace similar to the previous month.
However, production growth remained among the weakest recorded since the middle of 2022.
Consumer goods manufacturers reported a notable slowdown in both new orders and output. In contrast, producers of intermediate and capital goods recorded stronger expansion.
Input Purchasing Hits 31-Month Low
Companies continued to buy additional raw materials to rebuild reserve stocks.
However, the rate of purchasing growth slowed to its weakest level in 31 months.
Supply chain conditions improved significantly. Delivery times shortened at one of the fastest rates recorded in the survey’s history.
Stocks of purchased materials also increased more quickly, while inventories of finished products rose at their strongest pace in more than 11 years.
Manufacturing Employment Growth Slows
Indian manufacturers continued to hire additional workers in July.
Nevertheless, employment growth weakened for the third consecutive month and reached its slowest pace during the current 29-month period of uninterrupted job creation.
Unfinished work increased at the fastest rate in a year, although the overall rise in backlogs remained modest.
Inflation Pressures Ease
Manufacturers experienced slower cost increases during July.
Input cost inflation fell to a five-month low, although some companies reported higher transportation expenses.
Selling prices rose at a moderate pace that was broadly similar to the increase recorded in June.
Business Confidence Recovers
Despite slower manufacturing growth, business confidence improved from the recent low recorded in June.
Pranjul Bhandari, chief India economist at HSBC, highlighted the sharp improvement in supplier delivery times. She said the result indicated that supply chain delays were continuing to ease.
The survey was based on responses from approximately 400 Indian manufacturers collected between July 8 and July 27.
