Manufacturing PMI Dips to 58.1 in July, Sector Remains Strong

New Delhi, Aug 1 (KNN) India's manufacturing sector continued its robust performance in July, albeit with a slight moderation in growth, according to the latest HSBC India Manufacturing Purchasing Managers' Index (PMI) released on August 1.

The seasonally adjusted PMI eased to 58.1 in July from 58.3 in June, primarily due to a marginal slowdown in new orders and output growth. Despite this small dip, the index remained well above the long-term average, indicating sustained strength in the manufacturing sector at the start of the second quarter.

Pranjul Bhandari, chief India economist at HSBC, commented, "India's headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern."

A notable bright spot in the report was the strong performance of exports, with international sales expanding at the second-strongest rate in over 13 years. This surge in external demand has helped maintain high employment levels in the sector.

However, the positive demand conditions have also led to increased input costs, with inflation accelerating. Manufacturers have been able to pass on these higher costs to consumers, resulting in the rate of inflation rising to its highest level in about 11 years. Bhandari warned that this trend "may signal further inflationary pressure in the economy."

The manufacturing data comes on the heels of infrastructure output figures released on July 31, which showed growth easing to a 20-month low of 4 percent in June. This slowdown has been attributed to reduced government spending and a high base effect from the previous year.

Despite this, experts anticipate an uptick in capital expenditure utilisation in the coming months. However, data for the first quarter indicates that capex utilisation was lower than the previous year, at 16.8 percent of the full-year target compared to 23 percent last year.

As the Reserve Bank of India (RBI) prepares for its upcoming meeting next week, economists expect the central bank to maintain interest rates for the ninth consecutive time. The high policy rates are likely to impact economic activity in the second quarter.

Looking ahead, there's growing speculation about a potential rate cut in October, especially in light of recent comments by Federal Reserve Chair Jerome Powell hinting at a possible September rate cut in the US.

In conclusion, while India's manufacturing sector continues to show resilience, policymakers will need to navigate carefully between supporting growth and managing inflationary pressures in the coming months.

(KNN Bureau)