India factory growth softened in November on high inflationary pressures, PMI shows

Asia’s third-largest economy expanded a lacklustre 5.4% in the July-September quarter, official data showed on Friday, led by tepid growth in manufacturing and consumption. The rate was much lower than the 6.5% expected in a Reuters poll.

The HSBC final India manufacturing Purchasing Managers’ Index, compiled by S&P Global, fell to 56.5 last month from 57.5 in October. A preliminary estimate was far higher at 57.3.

Nevertheless, the index remained above the 50-mark separating expansion from contraction and extended the growth streak to almost three and a half years.

The output and new orders sub-indexes fell to their lowest and second lowest this year, respectively. Despite slower expansion due to competition and inflationary pressures, the upturn remained substantial on strong demand.

An uptick in demand from abroad was noticed for Indian-made goods. International demand rose at the fastest pace since July. “Strong broad-based international demand, evidenced by a four-month high in new export orders, fuelled the Indian manufacturing sector’s continued growth”, noted Pranjul Bhandari, chief India economist at HSBC. High demand and capacity expansion led to a robust rise in the business outlook for the year ahead, pushing the sub-index to a six-month high.

To accelerate production firms continued to hire, albeit at a slower pace than in October.

Inflationary pressures rose with both input and output prices edging up. While cost price inflation rose at its fastest since July, the increase in output prices was the most pronounced in over 11 years.

“Input prices for a variety of intermediate goods – including chemicals, cotton, leather, and rubber – rose in November, while output prices soared … as rising input, labour, and transportation costs were passed on to consumers”, added Bhandari.

India’s inflation rate rose to 6.21% in October, a 14-month high and breaching the Reserve Bank of India’s target range of 2-6%. Economists pushed their forecasts of a rate cut by the central bank in December to early next year, a Reuters poll showed.