What the surprise manufacturing slowdown means
₹50 trillion for the first time in November last year. Many factors have contributed to it. The pace of new orders has been slower than in previous months.
This is due to fading demand for certain products. Also, it could well be a case of inventory management, as companies had built up stock in view of the festive season in the months before. Exports have been sluggish as well, registering negative growth in the first two quarters of 2023-24.
Inflation continues to remain closer to the top end of Reserve Bank of India’s (RBI) target band of 4-6%. With a combination of these factors, manufacturing output in December rose at the slowest pace in 14 months. If the manufacturing slowdown continues, it may hurt growth that has been galloping at over 7.5% in the first and second quarters of 2023-24.
As things stand, RBI expects 2023-24 growth at 7%. The government’s first advance estimate pegged it even higher at 7.3%. All indicators, including GST mop-up and direct tax collections, indicate continuation of robust growth.
Global Manufacturing PMI ended 2023 with a December score of 49, the 16th month it has remained below 50. US manufacturing has been contracting for the past 14 months. Europe, Japan and the entire ASEAN region are faring no better.
China saw a manufacturing PMI of 50.8 in December—a four-month high. The battle to tame inflation in developed markets has seen interest rates rise and discretionary spending fall. India remains the silver lining in an otherwise gloomy manufacturing story across the world.
The Future Output Index, which measures purchasing managers’ optimism on production in the near term, is encouraging. Indian purchase managers’ confidence is at a three-month high. This indicates a strong
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