India’s rising manufacturing sector

What is the issue?

As per recent studies, India’s manufacturing sector seems to be getting benefitted from the ongoing US-China trade war.

What does the recent study show?

• Acuité Ratings’ study of India’s Manufacturing PMI for August 2018 indicates that there is optimism on new orders and a positive outlook on fresh hiring in India.
• The index measures the overall sentiment of the manufacturing sector of an economy by incorporating views from a panel of purchasing managers.
• A figure of over 50 in the index means that the country is witnessing business expansion.
• It reveals that the index for India has remained over 51 for much of the last one year despite the monthly volatility that is typically seen in the PMI.
• India has been a consistently better performer over the past few quarters, while comparing the overall Manufacturing PMI performance of both India and China.

• India’s PMI gained almost 120 bps since last year, the Chinese PMI gained just 2 bps.
• Also, the growth in India comes on top of a strong base of 13.5% as compared to China’s 12.7% in Q1 FY18.
• This is against the backdrop of a significant divergence since Q4 FY18 between the two nations when Chinese manufacturing growth was nearly 140 bps higher than that of India.

What does it reveal?

• Indian manufacturing, as per the survey and reflected in the PMI numbers, witnessed expansion in employment opportunities and new orders.
• Both new and overseas orders have been rising continuously for tenth month in a row.
• This reflects improving sentiments in the manufacturing sector, and even among exporters, with regard to hiring plans and business outlook.
• It is primarily driven by the uncertainty from the US led trade wars, the consequent impact on new export orders in China and the likely benefit accruing to the Indian manufacturing exports.
• Also, the expected US sanctions on imports from China and their impact on upcoming orders have weakened China’s business outlook.
• This apart, Chinese exporters have also witnessed intensifying cost pressures due to restructuring, environmental compliance and tighter fiscal policy.
• The depreciation of the rupee with respect to the dollar over the last three months has also made India’s exports more competitive.   
• Government is also actively working towards pushing the export promotion councils where India could have a comparative advantage.

What are the concerns?

• However, input cost escalation and the inflationary pressures on the Indian manufacturing sector will be particularly important.
• Also, the current NBFC sector crisis may negate the possible gains arising as a result of US-China trade war.
• Thus, the sustainability of this trend needs to be seen over the next few quarters.

Source: Business Line