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.