India’s manufacturing activity is slowest in 3 months, but it’s nothing to be worried about

Uneven consumer demand and other factors such as uncertainty caused by the war in Europe have kept capital expenditure by Indian firms down, as they decided to wait and watch. Earlier reports showed that while demand for high-end products was strong, spending on budget phones and two-wheelers is low during the festive season, highlighting India’s inequality. This explains why the country’s manufacturing activity in September was the slowest in three months according to Purchase Managers’ Index (PMI).

What do the numbers say?

The PMI calculated from data on new orders collected from manufacturing managers at factories across India, came down to 55.1 in comparison to 56.2 in August. The findings of a survey by S&P Global India, adjusted as per seasonal shifts in supply and demand, showed that companies have scaled up manufacturing, since business expansion remains historically strong, despite slowing down compared to last month.

The manufacturing PMI is swayed by factors such as new orders, a company’s inventory, hiring, and deliveries to be made. Any number above 50 for PMI indicates an expansion in the industry, while below that level means that business activity is contracting. Hence as of now, India’s manufacturing sector is in good shape, and might get better as consumer demand across online and offline marketplaces has gone up by up to 20 per cent during Navratri, as compared to the same time last year.

Signs of growth to come

In addition to these green shoots, India has also launched the $1.3 trillion Gati Shakti initiative to unify 16 ministries on one digital platform, to emerge as a viable alternative to China. Foxconn has also partnered with Vedanta to establish a semiconductor plant in Gujarat, creating hope for India to become a chipmaking hub. Amidst these developments, Pegatron has become the third supplier for Apple to start manufacturing operations in India.

Despite the capex costs surging after RBI’s rate hike, Indian companies are more likely to respond to a demand recovery from the festive season.