India's Manufacturing Sector Faces a Slowdown

In February, India's manufacturing sector experienced its slowest growth in 14 months, as indicated by the latest HSBC India Manufacturing Purchasing Managers' Index (PMI). The index fell to 56.3 from January's 57.7, signaling a deceleration in new orders and production. Despite this, the sector remains in expansion territory, with a PMI above 50 indicating growth.

Insights from HSBC's Chief India Economist

Pranjul Bhandari, HSBC's chief India economist, noted that despite the slowdown, the overall momentum in India's manufacturing sector remained positive. The survey highlighted a sharp expansion, driven by strong global demand for new export orders and robust domestic and international demand encouraging manufacturers to increase purchasing activity and hire more workers.

Employment and Business Expectations

On the employment front, the sector continued to expand its workforce, with nearly 10% of firms reporting increased hiring. This marks the second-strongest rate of job creation in the survey's history. Business expectations remained strong, with a significant portion of survey participants anticipating greater output volumes in the coming year.

Cost Pressures and Economic Recovery

Cost pressures saw their slowest rise in a year, yet strong demand kept selling prices elevated. Meanwhile, India's broader economic performance showed signs of recovery, with GDP growing by 6.2% in the December quarter, rebounding from a seven-quarter low. For the 2024-25 fiscal year, the government has revised its GDP growth projection to 6.5%, slightly up from an earlier estimate but still below the previous year's growth rate.