India’s Manufacturing and services sector’s performance reflected in Purchasing Manager’s indices

India’s manufacturing sector has shown resilience and growth in the first four months of FY25, with several key indicators highlighting its robust performance says the monthly economic review for July of the finance ministry.

The Purchasing Managers’ Index (PMI) for Manufacturing, stood at 58.1 in July 2024. This figure is not only significantly above the long-term average but also among the highest recorded in recent years. The sector’s expansion has been primarily driven by strong demand and a surge in production volumes, underscoring its vital role in the nation’s economic landscape.

However, the sector has also faced challenges, particularly in the form of rising input costs. July 2024 saw input cost inflation in the manufacturing sector reach its highest level in nearly two years, driven by increased prices for key materials such as coal, leather, packaging materials, paper, rubber, and steel.

These escalating costs have compelled manufacturers to raise output prices, which hit an 11-year high during the same month.

Despite these pressures, the Index of Industrial Production (IIP) reported a year-on-year (YoY) growth of 5.2 per cent in Q1 FY25, up from 4.7 per cent in the same period the previous year, with notable growth in the production of primary goods, intermediate goods, and consumer durables.

Additionally, the index of eight core industries recorded a YoY increase of 5.7 per cent in Q1 FY25.

Further insights from the Reserve Bank of India’s (RBI) Order Books, Inventories, and Capacity Utilisation Survey in August 2024 indicated an expansion in capacity utilisation within the manufacturing sector. Capacity utilisation rose to 76.8 per cent in Q4 FY24 from 74.7 per cent in the previous quarter.

Although the seasonally adjusted capacity utilisation remained stable at 74.6 per cent during the same period, overall business sentiment in the manufacturing sector moderated in Q1 FY25.

Housing sales in Q1 FY25 witnessed a YoY growth of 41.8 per cent across eight major cities, reflecting positive consumer sentiment toward real estate investments, backed by solid macroeconomic fundamentals. This uptick in housing demand has had a positive ripple effect on the manufacturing sector, further fuelling its momentum.

In parallel, the services sector has also continued to perform well, with the PMI Services Index standing at 60.3 in July 2024. The sector’s expansion has been driven by an increase in international sales, new order uptakes, and rising export orders, despite facing rising wage and material costs.

The tourism sector, a key driver of the services industry, has shown impressive growth. Cumulative Foreign Tourist Arrivals (FTAs) during January-May 2024 reached 40.7 lakh, up from 37.3 lakh in the corresponding period of the previous year. Foreign exchange earnings from tourism during the same period totalled Rs 1.1 lakh crore, marking a 22.5 per cent increase YoY.

The World Travel and Tourism Council’s report for 2023 highlighted that India’s travel and tourism sector has fully recovered to pre-pandemic levels, contributing Rs19.3 lakh crore to the nation’s GDP in 2023–a nearly 10 per cent increase over pre-pandemic levels.

Domestic tourism spending in 2023 also surged, reaching Rs14.6 lakh crore, 15 per cent higher than pre-pandemic levels. India is projected to become the fourth-largest domestic travel market in terms of spending by 2030, further boosting the tourism and hospitality sectors.