Why India’s manufacturing PMI hit a 31-month high in May

The May PMI comes a day after data showed that India’s gross domestic product (GDP) expanded at 6.1 per cent January-March 2023 quarter, in turn pushing up the growth estimate for the full year 2022-23 to 7.2 per cent. The manufacturing sector registered a year-on-year growth of 4.5 per cent in Q4 FY2023.

By how much did manufacturing activity expand in May?

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) rose from 57.2 in April to 58.7 in May, indicating the strongest improvement in the health of the sector since October 2020. Out of the five PMI sub-components, stocks of purchases showed notable vigour, increasing at an unprecedented pace in May.

A reading above 50 indicates an overall expansion compared to the previous month and a print below 50 shows an overall decrease. The index is compiled by S&P Global from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

But what are the reasons for rise in manufacturing PMI in May?

The increase in May Manufacturing PMI was on account of a remarkable strength demonstrated in the demand conditions.

Not only did factory orders increase for the twenty-third month running in May, but also to the greatest extent since January 2021. Exports gave impetus to total new orders in May. Companies registered the quickest expansion in international sales for six months.

“The PMI’s spotlight on soaring sales showcases robust demand for Indian-made products both domestically and internationally,” S&P Global Market Intelligence Economics Associate Director Pollyanna De Lima said.

What was the impact of robust factory orders?

A rise in factory orders led to a surge in sales which paved the way for stronger increases in production, employment and quantities of purchases, the survey showed.

May data indicated a sharp and accelerated increase in quantities of purchases, with the rate of expansion quickening to the strongest in over 12 years.

Indian manufacturers scaled up production volumes as a result of growing new orders and favourable market conditions. Rising inflows of new business exerted pressure on the capacity of goods producers. Capacity pressures supported job creation, with the rate of employment growth improving to a six-month high. Companies noted a record accumulation in input inventories as supply chain-conditions improved further.

“While the upturn in domestic orders strengthens the foundations of the economy, rising external business foster international partnerships and boosts India’s position in the global market. Combined, they also generated more employment opportunities in May,” De Lima said.

How did GDP and manufacturing sector perform in FY2023?

The latest data released by the National Statistical Office (NSO) on Wednesday showed that the country’s GDP clocked a higher-than-expected growth rate of 6.1 per cent in January-March 2023, lifting the growth estimate for FY2023 to 7.2 per cent. This growth was supported by a pickup in services sector growth led by construction, and trade, hotels, transport sectors along with higher investment even as private final consumption expenditure registered a muted growth.

In Q4FY2023, the manufacturing sector rebounded to year-on-year growth of 4.5 per cent after having contracted in each of the previous two quarters. For the full year though, revisions for the previous quarter ensured manufacturing growth being estimated now at 1.3 per cent for FY23 as against 0.6 per cent earlier.

“This comes as a relief as the sector has been under pressure despite the easing of input prices due to slowing of external demand and uneven demand recovery domestically,” Care Ratings said in a report.