India's manufacturing activity moderates in March as production, sales slow

Production, sales expand at the slowest pace in six months; positive sentiment falls substantially

India’s manufacturing activity moderated in March as companies said production expanded slowly and new export orders declined, according to data released by S&P Global.

Manufacturing Purchasing Managers’ Index (PMI) was recorded at 54.0 in March, down from 54.9 in February, highlighting weakest rate of growth in terms of production and sales since September 2021. PMI reading above 50 indicates expansion while a print below 50 denotes contraction.

“The slowdown was accompanied by an intensification of inflationary pressures, although the rate of increase in input costs remained below those seen towards the end of 2021,” said Pollyanna De Lima, economics associate director at S&P Global.

There has been yet another increase in input prices at the end of fiscal year 2021-22 with chemical, energy, fabric, foodstuff and metal costs reported higher than in February.

“The overall rate of inflation quickened and outpaced its long-run average, but was the second-slowest in six months,” the survey said.

India’s retail inflation measured by the Consumer Price Index (CPI) touched an eight-month high of 6.04% in February. It is expected to remain high for some months, as the impact of high oil and commodity prices on the back of geopolitical tensions due to the ongoing Russia-Ukraine war will hover on the economy.

Output prices rose in March as goods producers shared part of the additional cost burden with their clients, the survey said.

As of now, the demand has been sufficiently strong to withstand price hikes, but if inflation continues to gather pace there may be a more significant slowdown, if not an outright contraction in sales, Lima said.

"Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low,” Lima said.

Data for March pointed to subdued optimism towards growth prospects among Indian manufacturers, with the overall level of sentiment slipping to a two-year low. This was due to inflation concerns and economic uncertainty, the survey said.