India’s manufacturing sector witnessed a notable slowdown in growth, hitting an 18-month low in December 2023, primarily attributed to a reduced rate of increase in new orders and production levels.
The final Indian manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global and disclosed by HSBC, stood at 54.9 in December. While slightly down from November’s 56.0, it remains above the critical mark of 50, signifying continued expansion in India’s manufacturing activity. This expansion marks the sector’s continuous growth for the 30th consecutive month.
Despite the deceleration, manufacturers maintain an optimistic outlook for 2024, foreseeing improved customer relationships and an upsurge in new order inquiries.
However, December marked a decline in demand, with the new orders sub-index dropping to 57.3, hitting its lowest level since June 2022. Additionally, output expanded at its slowest pace in 14 months.
The growth in exports also tapered to its lowest in six months, consequently leading to the slowest employment growth in nine months.
While raw material costs and product prices remained relatively stable compared to November, the price of output (finished goods) surged higher than raw material costs for the fourth consecutive month. This trend suggests that factories continue to pass on increased costs to customers.
Analysts anticipate the Reserve Bank of India (RBI) to refrain from monetary easing until the latter half of the year, specifically by the end of the second quarter (July-September). This strategy aims to align with the expectation that inflation will converge towards the RBI’s medium-term target of 4.00% within this period.