Increase in July's Manufacturing PMI to 59.3

India's manufacturing sector experienced a significant surge in August, as the HSBC India Manufacturing Purchasing Managers' Index (PMI) rose to a 17-and-a-half-year high, according to a private research firm S&P Global. The index, which indicates the health of the manufacturing sector, climbed to 59.3, marking a 17-year record high.

The strong PMI reading suggests an improvement in operating conditions within the sector. The growth was primarily driven by an acceleration in production and strong demand, with the strongest sales and output performances noted in the intermediate goods category, followed by capital goods, and then consumer goods.

Incoming new orders in August rose to a level broadly the same as in July, which was the fastest in 57 months. Manufacturers reported securing new work from clients in Asia, Europe, the Middle East, and the US. However, the slight decrease in new export orders was due to weakening demand in some key export markets and ongoing global economic uncertainties.

The rapid expansion in production added to inflationary pressures, as companies upped the pace at which additional materials were bought during August. Despite this, overall orders growth held up much better, suggesting that domestic orders remained robust.

The rise in PMI was also aided by more jobs being created in August, marking the 18th month in a row of job creation. However, the pace of job creation in August slowed to the weakest since November 2024, but was still historically solid.

Pranjul Bhandari, chief India economist at HSBC, stated that the increase in US tariffs on Indian goods to 50% might have contributed to a slight easing in new export orders growth. The underlying data showed a softer increase in international orders placed with Indian manufacturers.

In PMI parlance, a score above 50 means expansion, while a score below 50 denotes contraction. The rise in India's manufacturing PMI in August, though the weakest for five months, was still sharp by historical standards.

The Maharashtra Cabinet also approved major infrastructure projects, which could further boost the manufacturing sector's growth in the coming months. Manufacturers' continued optimism for future output is a positive sign, indicating a promising outlook for the sector.

This surge in the manufacturing sector comes amidst the implementation of US tariffs on goods from India, including a 25% penalty for buying crude oil from Russia, which took effect on August 27. Despite these challenges, India's manufacturing sector continues to show resilience and growth.