India’s manufacturing sector is showing remarkable resilience, according to the latest HSBC India Manufacturing PMI data. The index soared to 58.1 in March, a significant jump from 56.3 in February and the highest reading in eight months. This surge is largely attributed to a dramatic increase in new orders, which also reached an eight-month high. While domestic demand remains robust, the shadow of potential US tariffs is casting a long pall over this otherwise bright picture. The Reserve Bank of India (RBI) now faces a delicate balancing act as it considers its monetary policy response to these conflicting signals.

PMI Paints Rosy Picture

The March PMI data offers a genuinely optimistic view of Indian manufacturing. The headline number of 58.1 signals strong expansion, driven by a surge in new orders. Manufacturers reported faster production growth and a sharp decline in finished goods inventories, indicating robust demand. While new export orders saw a slight moderation, strong domestic demand more than compensated, driving overall activity. This positive momentum suggests that the Indian manufacturing sector entered the new financial year on a firm footing.

Tariffs Threaten Recovery

However, this encouraging domestic momentum could face headwinds from abroad. The impending announcement of new US tariffs, potentially targeting goods from India with rates between 10% and 20%, presents a significant risk. While India’s economy is primarily domestic-oriented, these tariffs could still disrupt supply chains and dampen business sentiment. The threat of protectionist measures from one of the world’s largest economies cannot be ignored and injects considerable uncertainty into the outlook for Indian manufacturers.

RBI’s Policy Conundrum

This situation creates a policy dilemma for the RBI. The strong PMI data might suggest that the economy is on a firm growth trajectory, potentially warranting a hawkish stance on inflation. Yet, the uncertainty posed by US tariffs and the broader global economic climate argue for a more accommodative monetary policy to support growth. The RBI’s upcoming monetary policy meeting on April 9th will be closely watched for signals on how it intends to navigate this complex landscape. Should it prioritise growth by easing monetary policy preemptively, or maintain a tighter stance to guard against inflation risks?

Bajaj Finance Under Scanner

Adding to the sense of heightened regulatory scrutiny in the financial sector, Bajaj Finance has received a ‘letter of displeasure’ from the RBI regarding lapses in its co-branded credit card business. The RBI has flagged concerns about data security, fraudulent activities, and inadequate internal controls within Bajaj Finance’s operations. This development underscores the increasing focus of the RBI on data protection and compliance within the financial services sector, particularly in the rapidly expanding digital lending space. It also serves as a reminder that even as the manufacturing sector shows signs of strength, financial stability and regulatory adherence remain paramount.

Will the RBI lean towards supporting growth in the face of external risks, or will it prioritise inflation control? The next few days will be crucial in setting the tone for India’s economic trajectory in a world increasingly fraught with uncertainty.