In October, India's manufacturing activity accelerated, with the Manufacturing Purchasing Managers' Index (PMI) rising from 56.5 in September to 57.5, surpassing initial estimates. This marks a return to growth for India's manufacturing sector after three consecutive months of slowdown, driven mainly by strong demand. Pranjul Bhandari, HSBC India's Chief Economist, stated that the rise in PMI reflects an overall improvement in economic conditions, especially driven by new orders and international sales, leading to robust demand growth and significantly boosted business confidence.
As orders flow in from regions such as Asia, Europe, Latin America, and the United States, India's international demand shows a rebound, further enhancing the manufacturing outlook. Businesses are confident about strong demand persisting for the coming year and have thus increased hiring, with recruitment growing for the eighth consecutive month in October. The previously faced employment pressure by the government has thus eased, although economists caution that employment growth might remain relatively limited in the upcoming year.
However, as demand rises, inflationary pressures are also increasing. Both input and output costs have accelerated, with increasing costs of materials, wages, and transportation pushing input costs to a three-month high. Manufacturers are accelerating the pass-through of these costs to end prices, further driving inflation. India's inflation rate climbed to 5.49% in September, nearing the upper limit of the Reserve Bank of India's (RBI) target range. Nonetheless, some economists predict that the RBI may cut interest rates from 6.5% to 6.25% in December to support economic growth.
