India Manufacturing PMI slides to 53.9 in March as cost pressures mount

This deceleration indicated the weakest improvement in overall business conditions in nearly four years, with the headline figure slipping below its long-run average of 54.2. As per the report, the sector faced a significant cooling effect as several domestic and global headwinds converged to dampen the momentum seen in previous months.

The report noted that a combination of factors, including fierce competition and heightened market uncertainty, weighed heavily on the industry. Geopolitical tensions, specifically the ongoing war in the Middle East, were cited as a primary reason for the softer growth in both production and demand.

"Growth across India's manufacturing industry took a step back in March as cost pressures, fierce competition, heightened market uncertainty and the war in the Middle East all led to softer increases in new orders and output," the report noted.

The two largest sub-components of the index, new orders and output, recorded their slowest rates of expansion since mid-2022. The report stated that while demand remained positive, the pace was curbed by challenging market conditions. Cost pressures played a decisive role, and input prices increased to their greatest extent in over three-and-a-half years.

"March data saw input prices increase to the greatest extent in over three-and-a-half years. Aluminium, chemicals, fuel, jute, leather, fabric, oil, rubber and steel were some of the items reported to be up in price," the report highlighted.

Pranjul Bhandari, Chief India Economist at HSBC, said, "Disruptions linked to the conflict in the Middle East are reverberating through the global economy and weighing on Indian manufacturers."

He noted that output and new orders slowed noticeably, signalling softer demand and greater uncertainty. Meanwhile, input costs rose sharply across a broad range of items, including aluminium, chemicals and fuels.

Despite these intensifying expenses, Indian firms chose to absorb the bulk of the added costs rather than passing them entirely to consumers. "For now, firms appear to be absorbing much of the increase, keeping output prices relatively contained," Bhandari said.

The increase in selling charges was the least pronounced in two years. This trend suggested a strategic focus on maintaining market share and securing new clients in a competitive environment.

"The rate of output price inflation receded to a two-year low, curbed by customer-retention efforts and attempts to secure new clients at some firms," it said

On the labour front, the sector provided a silver lining as employment grew at its strongest pace in seven months. This recruitment drive, coupled with the softer rise in new orders, allowed manufacturers to reduce their outstanding business volumes for the first time in nearly a year-and-a-half.

Companies also remained active in the purchasing market, continuing to build up inventories of raw materials to ensure smooth operations and guard against supply chain disruptions.

The export market also showed resilience during the month. Manufacturers registered the strongest expansion in external sales since last September, with a broad base of international clients ranging from Japan and mainland China to Europe and North America. (ANI)