India’s manufacturing sector experienced a slowdown in growth during October, with the Purchasing Managers’ Index (PMI) falling to 54.7 from 55.1 in September. This decline, reported by S&P Global, indicates a moderation in output and new orders, although the index remains above the neutral mark of 50, suggesting ongoing expansion.

The PMI reflects the health of the manufacturing sector, and despite the drop, it continues to be higher than the long-run average. New business growth remained robust, albeit slightly lower than the previous month, which had reached a seven-month high. Notably, new export orders surged at their fastest rate in six months, driven by increased demand from countries such as Bangladesh, Canada, Indonesia, and the United States.

This uptick in international orders has provided a cushion against the overall slowdown in domestic manufacturing. Pranjul Bhandari, the chief India economist at HSBC, noted that the strong international demand has significantly contributed to the growth of new export orders, thereby supporting production levels within the sector.

Output and Employment Trends

Despite the easing pace of production growth, factory output saw an increase, supported by favourable demand trends and successful marketing strategies. Manufacturers reported a rise in new business, prompting them to build inventories in anticipation of future production needs.

Input inventories rose at the fastest rate in eight months, as companies sought to establish precautionary buffers against potential shortages in a volatile global market. Additionally, firms increased their stocks of finished goods at a record pace, a trend not seen in over 21 years of survey history. This proactive approach was attributed to buoyant demand and the necessity to prevent shortages.

However, the growth rate of raw material purchasing slowed, marking the weakest expansion in the last 64 months. Factory employment continued to rise for the second consecutive month, driven by increased production requirements. However, the pace of job creation has eased compared to September, with capital goods manufacturers reportedly reducing staff during this period.

Input Cost Inflation and Business Confidence

The survey indicated a decline in input cost inflation across all three major areas of India’s manufacturing industry. Although some manufacturers reported higher prices for specific materials and energy, the overall rate of inflation for input costs dropped to its lowest level since February. This trend was mirrored in selling price inflation, which also weakened, with the increase in output prices being the slowest recorded in nearly four years.

Bhandari commented that while some costs have risen, the overall pressures on both input and output prices have eased slightly compared to the previous month. This moderation in cost pressures may provide some relief to manufacturers as they navigate the current economic landscape. Despite the ongoing growth in demand, business confidence among manufacturers has weakened.

The survey revealed a decline in optimism, with confidence levels falling below the long-run average. Approximately 18 per cent of manufacturers anticipated an increase in output over the next year, while the remainder expressed neutral expectations. The outlook for higher production is supported by new client inquiries and a growing demand for industrial automation and technology solutions.

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