After falling to a 14-month low of 56.3 in February, the seasonally adjusted HSBC India Manufacturing PMI rebounded to 58.1 in March, marking its highest level in eight months. A reading above 50 signals expansion. The surge was driven by the PMI’s largest sub-component—the New Orders Index—as total sales in March expanded at their fastest pace since July 2024. Companies cited strong customer interest, favourable demand conditions, and effective marketing initiatives, according to the PMI survey report.
Firms are expected to have ramped up production to meet year-end targets, which likely boosted volumes. However, celebrations may be premature especially given the looming uncertainty about the potential implementation of reciprocal tariffs by the US. Not surprising then that the PMI survey reflected this concern, showing subdued international orders.
US President Donald Trump is expected to announce a swathe of tariffs on 2 April, which he has dubbed “Liberation Day“, aimed at reducing America’s reliance on foreign goods—further escalating global trade tensions. Trump has already imposed tariffs on aluminum and steel.
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“To be clear, the direct hit to activity from the tariffs would be fairly small. India is not as dependent on US demand as many other emerging markets, notably Mexico and Vietnam,” said a Capital Economics report on 1 April. “We estimate that an average tariff rise of 20% would translate into roughly a 0.4% reduction in India’s gross domestic product (GDP) if exchange rates remained stable. However, the indirect impact would potentially prove bigger if it damages business and consumer confidence. The Reserve Bank of India (RBI) will be prescient to the risk of the economic recovery prematurely running out of steam,” added the report.
Reciprocal tariffs is feared to hamper growth and push inflation higher. This, in turn, could have a bearing on monetary policy trajectory ahead. The RBI is scheduled to meet on 7-9 April. The latest growth and inflation trends point to further loosening, so wide-held expectations are that the central bank would cut interest rate by another 25-basis points (bps), taking the repo rate to 6%.
RBI commenced the long-awaited easing cycle by cutting the policy repo rate by 25bps in February. Plus, it has also announced a slew of liquidity measures to support the economy.
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That said, economic growth prospects remain uncertain amid the current backdrop. Beyond external risks, the slowdown in urban consumption has been a growing concern.
“GDP growth for Q3 FY24-25 improved modestly to 6.2% year-on-year, up from 5.6% year-on-year, suggesting that the trough is behind us. High-frequency data since then have been mixed, at best,” said a Barclays report dated 2 April.
“We are tracking Q4 FY24-25 real GDP growth at 6.7% year-on-year, implying average GDP growth of 6.2% year-on-year for FY24-25. If realised, this would be 30bps lower than the MoSPI’s and RBI’s 6.5% year-on-year forecast,” it added.
Therefore, any revisions to inflation and growth projections for FY25 and FY26 by the RBI will be closely watched.
Meanwhile, the March PMI report also pointed out that amid reports of higher prices for copper, electronic items, leather, LPG and rubber, cost burdens rose further for Indian manufacturers, pushing PMI’s input cost index to a three-month high.
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In contrast, there was a softer increase in prices charged for Indian goods. As for business expectations, the Future Output Index eased marginally to 64.4 in March from 64.9 in the previous month, and remains exposed to the risk of further moderation.
