India’s manufacturing sector turned up the heat in October, notching its fastest growth in five years as factory activity surged on the back of buoyant domestic demand, tax relief measures and a renewed push for productivity.
The latest HSBC India Manufacturing Purchasing Managers’ Index (PMI) rose sharply to 59.2 in October from 57.7 recorded a month earlier, signalling a stronger improvement in the overall health of the sector.
GST Reforms Drive Demand
The survey, compiled by S&P Global, revealed that the quicker upturn in new orders was the driving force behind the expansion. Companies cited advertising, robust consumer sentiment and benefits from Goods and Services Tax (GST) reform as key contributors to the surge.
The pace of growth in new business outstripped that of September, while output also grew at one of the fastest rates seen in the last half-decade.
Interestingly, the bulk of the expansion was powered by the domestic market. New export orders, while still rising, did so at the slowest pace in ten months. The report highlighted that international demand for Indian goods remained firm but was less pronounced compared with earlier in the year.
The increase in local demand also prompted companies to stock up on raw materials and semi-finished goods, with input buying reaching its fastest pace since May 2023.
Cost Pressures Ease, But Prices Stay High
One of the more encouraging signs came from the input cost front. Price pressures on manufacturers eased notably, with overall expenses rising at the weakest rate in eight months and well below the long-term average.
This moderation was largely attributed to falling commodity prices and greater supply chain efficiency. Despite softer cost inflation, however, output charge inflation held firm at levels seen in September, matching a near 12-year high.
Many firms reported that resilient demand allowed them to pass on higher freight and labour costs to consumers without denting sales. “Demand strength was the key factor behind the current hike in output prices,” the survey noted, even as others suggested they were absorbing some of the cost increases to remain competitive.
Steady Job Creation and Improving Productivity
October marked the twentieth consecutive month of job creation in India’s manufacturing industry. The employment growth rate remained moderate, roughly in line with the previous month, reflecting ongoing but stable hiring momentum.
While capacity pressures were relatively mild, some firms reported slight increases in pending workloads due to rising order volumes. Encouragingly, suppliers managed to deliver inputs faster, with average delivery times shortening at the quickest rate in four months.
Inventory levels also painted an upbeat picture. Stocks of raw materials and semi-finished goods grew at the second-fastest pace since data collection began in 2005, trailing only May 2023. Firms attributed this inventory build-up to strong demand and confidence in sustained growth ahead.
Industry Optimism Remains High
Looking ahead, manufacturers are optimistic about the coming months. Many expect further benefits from GST reform, enhanced production capacities and aggressive marketing initiatives. Confidence in future demand remains strong, with companies also banking on pending contract approvals to sustain momentum.
Pranjul Bhandari, Chief India Economist at HSBC, said, “India’s manufacturing PMI accelerated to 59.2 in October, up from 57.7 during the month prior. Robust end-demand fuelled expansions in output, new orders, and job creation. Meanwhile, input prices moderated in October while average selling prices increased as some manufacturers passed on additional cost burdens to end-consumers. Looking ahead, future business sentiment is strong due to positive expectations around GST reform and healthy demand.”
A Robust Start to the Quarter
Overall, October’s data paints a buoyant picture for India’s manufacturing economy as it kicks off the third fiscal quarter. A powerful combination of policy support, domestic resilience and easing cost pressures seems to have put the sector on a firm footing, even as global demand softens. For now, India’s factories appear to be firing on all cylinders, making a strong case for sustained industrial growth in the months to come.
