What explains the resilience of Indian manufacturing?

Source: The post is based on the article “What explains the resilience of Indian manufacturing?” published in Live Mint on 5^th July 2023.

Syllabus: GS 3 – Indian Economy – Growth & Development, Industrial Policy

Relevance: About the improving manufacturing sector in India

News: The Manufacturing Purchasing Managers’ Index (PMI) shows India as the only large economy whose factory output is growing significantly.

What is Purchasing Managers’ Index (PMI)?

Read Here: What is  Purchasing Managers Index  PMI?  and Purchasing Managers Index(PMI) for manufacturing slipped to two years low

PMI involves surveys of purchasing managers in 500 manufacturing companies across 19 industries in India.

It helps analysts and economists to correctly anticipate the changing economic trends in GDP, inflation, employment and industrial production.

How is India’s manufacturing faring?

The PMI was at 57.8 in June, slightly lower than 58.7 in May. A PMI above 50 indicates expansion or growth compared to the previous month, while a value below 50 signifies contraction.

India’s manufacturing PMI is indicating the resilience of the country’s factory sector. 

The first three months of FY24 also saw a high manufacturing PMI, indicating a rebound in manufacturing, after a contraction of 1.3% in FY23.

This has led to an increase in business confidence and optimism around future business activity among the industry.

What has caused the manufacturing sector to revive?

Strong demand from both domestic and international markets led to significant enhancements in production, sourcing, and hiring.

As per the experts, this positive trend has been due to the government’s increased spending, especially in capital expenditure, and due to the increasing demand for private consumption, which grew by 7.5% in FY23.

What does this mean for the economy?

Strong manufacturing performance is crucial for India to achieve high GDP growth. 

However, this growth is accompanied by higher inflation and wage costs. Despite this, since demand is high, it will allow companies to pass on the increased costs to consumers.

How are other economies faring?

Major economies worldwide are facing challenges in their manufacturing sectors.

China’s June PMI of 50.5 was lower than May’s 50.9, and manufacturing business confidence has reached an eight-month low. China is also struggling with declining export demand and falling employment.

Even the Eurozone saw a PMI of 43.4 in June, indicating further contraction compared to May’s 44.8. Similarly, the United States recorded a PMI of 46.3 in June, marking a six-month low compared to May’s 48.4.

The contraction in the UK’s manufacturing sector has also worsened.

Source: Mint