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India’s Manufacturing PMI Eases to 3-Month Low in July Amid Inflationary Pressure

India’s manufacturing sector experienced a slight dip in growth momentum in July, with the Purchasing Managers’ Index (PMI) falling to 57.7 from 57.8 in June and 58.7 in May. However, the figure still indicates expansion in the sector. The buoyant demand, both domestic and in exports, played a crucial role in maintaining the growth momentum. Despite the recent easing in inflation, higher inflationary pressures remained a challenge for manufacturers.

Robust Demand Drives Growth in Indian Manufacturing Sector

  • The manufacturing PMI for India declined to 57.7 in July, but remained above the 50-mark, indicating expansion.
  • Buoyant demand from both domestic and export markets continued to drive growth in the sector.
  • Production lines remained active, with a solid increase in new orders leading to continuous monthly output growth since July 2021.

Employment Expands as Firms Respond to Capacity Pressure

  • Despite the pressure on capacity, firms expanded their employment to meet the rising demand.
  • The pace of job creation in July was in line with that seen in May and June.
  • Backlogs of work increased due to the strength of the rise in new orders.

Export Business Picks Up; Domestic Manufacturing Remains Strong

  • Growth in new export business reached its fastest rate since November 2022.
  • The Indian manufacturing sector outperformed many global counterparts that faced demand weaknesses during the same period.
  • The sector maintained its position as one of the top-performing industries globally.

Inflationary Pressures Pose Challenges

  • Despite a recent easing in inflation, higher inflationary pressures remained a key challenge for the manufacturing industry.
  • Input cost inflation accelerated to a nine-month high in July, particularly driven by higher raw material costs, such as cotton, and rising labor expenses.
  • Manufacturers responded to cost pressures by increasing their selling prices.

RBI’s Monetary Policy Response

  • Despite the RBI raising interest rates by 250 basis points since May 2022, it has held the repo rate at 6.50% since April.
  • The repo rate is predicted to remain unchanged until next year, signaling the central bank’s cautious approach amid the economic landscape.

Future Projections and Optimism

  • Firms anticipate continued high demand in the coming years, supporting projections of sustained production growth in the manufacturing sector.
  • Despite challenges and uncertainties, the industry remains optimistic about its prospects.

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