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PMI: India’s export  cheer  on  last  legs


Business activity in India’s manufacturing sector held up in October, amid easing pricing pressures. The seasonally adjusted S&P Global manufacturing Purchasing Managers’ Index (PMI) rose slightly to 55.3 in October from 55.1 in September. A reading above 50 indicates expansion.

The October PMI readings from some other key Asian countries reflect the continued weakening of global demand. As such, India’s PMI shows that the country has been on a better footing. However, the improvement in India’s headline manufacturing PMI was largely driven by the unusual jump in the sub-index measuring employment. According to the PMI survey report, manufacturing employment increased at a rate that was one of the strongest since data collection started in March 2005.

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An outliner: But for how long?

“The sudden improvement in labour demand probably won’t last, though it makes sense in the context of rising backlog of work,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics. The improvement in the headline number masks a continued softening in the new orders sub-index and its output counterpart, he added.

India’s seasonally adjusted New Export Orders Index also rose to its highest level since May. This is a steep contrast to what some other Asian economies are experiencing amid fears of a global recession. Nomura’s leading index of Asia’s (ex-Japan) aggregate exports is signalling a deepening downturn in Asia’s export growth. In a report dated 31 October, economists at Nomura Singapore Ltd said that its latest reading plunged from 89.9 to 85.7. This is the largest drop in five months and the lowest reading since August 2020. Weakness in China’s imports and a steeper decline in Shanghai’s Shipping Exchange Freight Index were among the key drivers, it said.

For the seventh month in a row, India’s New Export Orders Index was in the expansion zone in October. “So far, the weakening trend in Asian exports appears to have had limited impact on India’s export orders. At the margin, some commodities that India exports, such as gems and jewellery, may still have a price advantage versus Asian peers and that could be aiding here,” said Rahul Bajoria, chief India economist at Barclays.

The moot question is for how long India can stay immune to the trend of slowing Asian exports. India’s exports will soon start to feel the heat and the upcoming official exports data is likely to show a negative growth on a year-on-year basis, Bajoria said.

Meanwhile, Indian manufacturers remained confident of a rise in production volumes by October 2023, said the PMI survey report. The overall level of business optimism among Indian manufacturers was higher than historical standards, but it fell to a three-month low in October.

This is not entirely surprising, considering that India’s retail inflation is hovering above the Reserve Bank of India’s (RBI) comfort zone and remains sticky. India’s manufacturing activity may have got a boost during the festive season, but demand, especially for discretionary items, may come under pressure because of inflation. Also, the spectre of more interest rate hikes, though of smaller quantum, still looms large.

The RBI is scheduled to meet on 3 November to discuss an explanation on why it has not been able to keep retail inflation within its 2-6% target band for three consecutive quarters. Nobody expects the central bank to pull a rabbit out of the hat by hiking interest rates at this meeting. Even so, another 25 basis points rate hike, cannot be ruled out going ahead, as the central bank continues its fight to tame inflation.

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