India's manufacturing PMI edges down to 57.7 in July

*India's manufacturing PMI edges down to 57.7 in July*

India's manufacturing sector activity continued to expand in July compared to June, although the S&P Global Purchasing Managers' Index (PMI) edged down marginally to 57.7, data released on August 1 showed.

The manufacturing PMI stood at 57.8 in June. The gauge of manufacturing sector activity in July is above the key level of 50 - which separates expansion in activity from contraction - for the 25th month in a row.

"The Indian manufacturing sector showed little sign of losing growth momentum in July as production lines continued to motor on the back of strong new order growth," said Andrew Harker, Economics Director at S&P Global Market Intelligence.

"All in all, the Indian manufacturing sector has maintained its position as one of the star performers globally, bucking the trend of demand weakness seen in other parts of the world," Harker added.

The July PMI figure marks another solid start to a quarter for India's manufacturing sector, with the index having averaged 57.9 in April-June and 55.7 in the first quarter of 2023.

In July, S&P Global's survey reported "widespread" improvement in demand, which resulted in "another marked expansion" in new manufacturing orders. Further, export orders rose the most since November, especially from the US, Bangladesh, and Nepal. On the whole, the rise in new orders led to the manufacturing sector's output increasing substantially in July, although the rate at which it rose was the least in three months.

Higher orders pushed up employment, with S&P Global describing the pace of job creation in July as "solid" and "broadly in line" with what was seen in May and June.

On the prices front, there was mixed news. While input cost inflation hit a nine-month high in July, it was lower than the series average. As a result, selling prices rose solidly, albeit the least in three months, S&P Global said.

The robust PMI number will be welcomed by policymakers, especially as it comes a day after commerce ministry data showed India's core sector growth hit a five-month high of 8.2 percent in June. While growth has been outperforming expectations - the GDP clocked a growth rate of 6.1 percent in January-March, a full percentage point more than was forecast - inflation has surged in recent months on the back of surging vegetable prices. Such has been the price jump among key food items that economists expect headline retail inflation to rocket past the upper bound of the Reserve Bank of India's (RBI) tolerance band of 2-6 percent in July.

As such, the RBI's Monetary Policy Committee is seen leaving the repo rate unchanged at 6.5 percent on August 10 for the third meeting in a row.

"We expect the recent surge in perishable food prices to reverse in Q3 FY23-24 (October-December). Already, the rise in retail tomato prices is starting to slow. Still, we think the RBI will sound cautious, given the evidence of transmission of price volatility across vegetables. This offers a further reason for the central bank to remain on hold," Rahul Bajoria, managing director and head of EM Asia (ex-China) Economics at Barclays, said in a note on August 1.