PMI: India’s exports at last stop

The October PMI readings of some other major Asian countries reflect continued weakening of global demand. In such a situation, the PMI of India shows that the country is in a better position. However, the improvement in India’s headline manufacturing PMI was largely driven by an unusual jump in employment measuring sub-index. According to the PMI survey report, manufacturing employment grew at a rate that was one of the strongest since data collection began in March 2005.

“A sudden recovery in labor demand probably won’t last, although it makes sense in the context of the growing backlog of work,” said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics. The correction in headline numbers has been steadily moderating in the new order sub-index and its output counterpart, he said.

India’s seasonally adjusted new export orders index also rose to its highest level since May. This contrasts with what some other Asian economies are experiencing amid fears of a global recession. Nomura’s Major Index of Asia (East-Japan) Total Exports is indicating a deep decline in Asia’s export growth. In an October 31 report, economists at Nomura Singapore Ltd said its latest reading fell from 89.9 to 85.7. This is the biggest drop in five months and the lowest reading since August 2020. Weakness in China’s imports and a sharp fall in Shanghai’s shipping exchange freight index were among the key drivers, it said.

India’s new export orders index was in expansion zone in October for the seventh consecutive month. “So far, the weak trend in Asian exports has had a limited impact on India’s export orders. On the margin, some of the items India exports, such as gems and jewellery, may still have a price advantage over their Asian counterparts and that could help here,” said Rahul Bajoria, chief India economist at Barclays.

The question is how long India can remain free from the trend of slowing Asian exports. Bajoria said India’s exports will soon start feeling the heat and the upcoming official export data is likely to show negative growth on a year-on-year basis.

Meanwhile, Indian manufacturers remain confident of increasing production volumes till October 2023, said the PMI survey report. The overall level of trade optimism among Indian manufacturers was higher by historical standards, but fell to a three-month low in October.

This is not entirely surprising, given that India’s retail inflation is hovering above the Reserve Bank of India’s (RBI) comfort zone and remains stable. India’s manufacturing activity may have picked up during the festive season, but demand for discretionary goods in particular could come under pressure due to inflation. Furthermore, the fear of higher interest rate hikes, albeit in small amounts, is still large.

The RBI is scheduled to meet on November 3 to discuss why it has not been able to keep retail inflation within its 2-6% target band for three consecutive quarters. No one expects the central bank to kick a rabbit out of the hat at this meeting by raising interest rates. Still, another 25 basis point rate hike cannot be ruled out, as the central bank continues its fight to contain inflation.