Rise in new orders after GST cuts drove manufacturing PMI to 59.2 in Oct

Goods and services tax (GST) relief, productivity gains and tech investment led to a faster increase in new orders

Manufacturing sector conditions in India continued to strengthen in October, buoyed by goods and services tax (GST) relief, productivity gains and tech investment that led to a faster increase in new orders, boosting output growth and buying levels, showed a private survey on Monday. 

 

The headline HSBC purchasing managers index (PMI) figure, compiled by S&P Global, for October rose to 59.2 from 57.7 in September. The figure remained only marginally lower than the record high of 59.3 in August.

 

A figure above 50 in the survey denotes expansion in activity, while below that signifies contraction. The headline figure has now been in the expansion zone for the 52nd month running.

 

 

“New orders increased further at the start of the third fiscal quarter, with companies attributing growth to advertising, buoyant demand and the GST reform. Moreover, the pace of expansion was sharper and stronger than that recorded in September,” the survey said. 

 

However, the pick-up in sales growth mainly stemmed from the domestic market, as new export orders increased at a softer rate. The latest improvement in international demand for Indian goods was marked, though the least pronounced in the calendar year-to-date.

 

Pranjul Bhandari, chief India economist at HSBC, said that India’s manufacturing PMI accelerated in October as robust end-demand fuelled expansions in output, new orders, and job creation.

 

“Meanwhile, input prices moderated in October, while average selling prices increased as some manufacturers passed on additional cost burdens to end-consumers. Looking ahead, future business sentiment is strong due to positive expectations around GST reform and healthy demand,” added Bhandari.

 

On the cost front, the survey noted that manufacturers purchased additional raw materials and semi-finished items in October, reportedly to supplement production and add to their inventories. Notably, buying levels expanded at the fastest pace since May 2023. One factor that supported input purchasing growth was a notable softening of cost inflation. The latest rise in overall expenses was modest, the weakest in eight months and well below the long-run series average.

 

“Despite receding cost pressures, the rate of charge inflation matched that registered in September and was therefore the joint-highest in 12 years. Survey participants indicated that demand strength was the key factor behind the current hike in output prices. Also, some firms suggested that greater outlays on freight and labour were transferred through to customers,” the survey noted.

 

On the jobs front, the survey noted that job creation entered its 20th consecutive month in October. The rate of expansion was moderate and broadly similar to September. Capacity pressures among Indian manufacturers remained mild, as signalled by another slight rise in outstanding business volumes. Demand strength was the main determinant of rising backlogs, according to monitored companies.

 

Regarding the outlook, manufacturers attributed positive expectations to GST reform, expanded capacities and marketing efforts. They also predicted demand resilience and hope that pending contracts will be approved.