Commerzbank analysts Dr. Henry Hao and Moses Lim report that the Indian Rupee (INR) has been Asia’s weakest currency year-to-date, declining 4.3% against the US dollar, compared to an average drop of 1.4% for Asian currencies excluding Japan [1]. This weakness is attributed to foreign portfolio outflows and a higher import bill resulting from elevated global energy prices [1]. The recent surge in global crude oil prices has intensified inflationary pressures, with input costs for manufacturers reaching nearly a four-year high [1]. Despite these pressures, firms have largely absorbed the increased costs and kept selling prices steady [1].
India's flash March manufacturing PMI fell to 53.8 from 56.9 in February, marking the weakest reading in four-and-a-half years, though it remains above the 50-neutral mark [1]. The decline was driven by softer output, with factory activity at its lowest level since August 2021, as geopolitical uncertainty weighed on production [1]. New order growth also moderated, but external demand stayed resilient, supported by orders from Asia, Australia, Europe, and the US [1].
The flash PMI data suggests a moderation in growth rather than a sharp slowdown, with manufacturing output and new order momentum softening. However, resilient external demand indicates that the drag on growth stems from uncertainty and cost pressures, rather than a collapse in demand [1]. While manufacturers face margin compression due to higher crude oil prices, services firms have been able to pass these costs on to customers [1].
CONCLUSION
The Indian Rupee's significant decline and rising input costs highlight the impact of global oil price volatility and capital outflows on India's economy. Despite these challenges, resilient external demand and steady selling prices suggest that growth is moderating rather than sharply slowing. Market participants should remain cautious as inflationary pressures persist and geopolitical uncertainties continue to weigh on manufacturing activity.