India’s manufacturing activity slowed slightly in October but remained strong. The seasonally adjusted HSBC India Manufacturing PMI fell to 54.7 in October from 55.1 a month earlier, but remained above its long-run average.

Strong international demand pushed growth in new export orders to a six-month high, supporting a robust rise in output. Producers also increased their input inventories at the fastest pace in eight months, building precautionary buffers against potential shortages and preparing to meet rising production requirements amid a volatile global environment.

Services activity accelerated in October, driven by strong demand. The seasonally adjusted HSBC India Services PMI rose to a four-month high of 55.8 in October from 55.2 in September, as business conditions continued to improve. Although overall demand remained fairly strong, new export orders expanded at the slowest pace since February 2023. Employment growth also slowed to its weakest pace since June, suggesting that some service sector businesses faced less pressure to expand their workforces.

India’s Composite PMI increased to 56.2 in October from 55.9 in September, marking the fastest expansion in aggregate output in four months. The October readings for manufacturing, services, and composite PMI were marginally below their respective flash estimates.

Automobile retail sales contracted year-on-year for the first time in 20 months in October, primarily because of a high base. Retail automobile sales declined 23.8% year-on-year to 3.17 million units, as sales had risen sharply in October last year following cuts in goods and services tax rates. Retail automobile sales had risen 45.4% year-on-year in October last year, the fastest pace in nearly three years. Despite the year-on-year decline, overall retail automobile sales rose 25.1% sequentially in October.

Sales of two-wheelers and passenger vehicles contracted sharply year-on-year in October, while other segments, including commercial vehicles, tractors, and three-wheelers, posted growth during the month. Two-wheeler sales declined 28.4% to 2.32 million units, while passenger vehicle sales contracted 14.2% to 507,768 units in October. The contraction in two-wheeler sales was the steepest since March 2021, while that in passenger vehicles was the biggest in 25 months.

Commercial vehicle sales rose 2.3% year-on-year to 115,140 units in October, while three-wheeler sales increased 4.0% to 141,420 units. Tractor sales increased 3.1% to 79,285 units. Sales of both commercial vehicles and three-wheelers were the highest ever recorded in a month.

The decline in sales was more pronounced in rural areas. According to the Federation of Automobile Dealers Association, retail automobile sales declined 28.6% in rural areas, compared with an 18.1% fall in urban areas.

Retail automobile sales are likely to be higher in November, as Dhanteras and Diwali fall in November this year, compared with October last year. Also, the base is relatively low, as retail automobile sales had risen only 2.1% year-on-year in November last year.

Goods and services tax collections rose 22.9% year-on-year to ₹2.31 trillion in October, the fastest pace in over four years.  Collections from domestic transactions rose 15.8% to ₹1.59 trillion, while those from imports increased 42.2% to ₹722 billion. October collections were the second-highest on record. However, the year-on-year comparison is not strictly comparable, as this year’s collections include a portion of the erstwhile GST compensation cess subsumed into GST rates, while last year’s excluded cess. Net of refunds, GST collections rose 20.3% to ₹2.03 trillion in October.

Electricity generation from conventional sources rose 20.5% year-on-year to 144.40 billion kWh in October, its highest growth in three years. In absolute terms, monthly generation was the second-highest on record. The increase was driven by strong thermal and nuclear power generation. Thermal power generation rose 28.1% year-on-year to 125.11 billion kWh, while nuclear power generation climbed 21.7% to 5.85 billion kWh. Hydropower generation, however, declined by 22.7% to 12.71 billion kWh.

Electricity generation has rebounded sharply over the past few months after remaining subdued nearly two years. Generation from conventional sources grew by an average of 8.9% year-on-year over the past seven months, compared with a contraction of 3.7% in the corresponding period a year earlier.

India’s foreign exchange reserves declined for the eighth consecutive week. Reserves fell by $2.69 billion to $717.06 billion in the week ended October 30, bringing the cumulative decline over eight weeks to $68.65 billion. Foreign currency assets declined by $2.09 billion to $591.12 billion, while gold reserves fell by $559 million to $102.59 billion during the week.

Reservoir storage levels continued to decline. As of November 5, live storage in the country’s 178 reservoirs stood at 121.93 billion cubic metres, or 66% of their total capacity. Storage was 27% lower than a year earlier and 17% below the 10-year average. Deficient southwest monsoon rainfall and low reservoir storage levels are likely to adversely affect rabi crops, which rely heavily on irrigation in many regions.

After a slow start, the northeast monsoon has recovered in the core region, comprising five subdivisions in South Peninsula - Coastal Andhra Pradesh, Rayalaseema, Tamil Nadu and Puducherry, South Interior Karnataka and Kerala. As of November 6, cumulative northeast monsoon rainfall in the core region was 200.4 millimetres, or 96% of the long-period average.  However, for the whole country, the weighted average rainfall was deficient at 70% of the long-period average, indicating a 30% deficit.

Rabi sowing continued to lag amid deficient rainfall and lower reservoir levels. The total area under rabi crops was 10.87 million hectares as of November 6, down 17.2% from a year ago. The area under wheat, the main rabi crop, declined 12.0% year-on-year to 1.98 million hectares, while the area under rice rose 3.1% to 0.67 million hectares. The area under pulses declined 14.4% to 3.19 million hectares, while the area under oilseeds fell 17.4% year-on-year to 4.21 million hectares. The area sown so far accounted for 16.8% of the normal rabi area of 64.52 million hectares.

Coming up

• November 12: CPI inflation for October
• November 16: WPI inflation for October
• November 16: Balance of Payments for September

Tailpiece
The US was the top source of foreign direct investment in India, accounting for 16.5% of outstanding FDI, followed by Mauritius at 14.5%, Singapore at 13.7%, and the UK at 10.8%. For outward direct investment, Singapore, the United Arab Emirates and the US were the top destinations, together accounting for more than 50% of the total.