India's manufacturing PMI recovers to 3-month high in July after contracting in June

India’s manufacturing activity recovered from a major fall in June as output, new orders, exports, quantity of purchases and input stocks all returned to expansion territory.

According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on August 1, manufacturing PMI stood at 55.3 in July, up from 48.1 in June and 50.8 in May.

In the previous month, the index fell below the critical 50.0 mark for the first time since July 2020. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.

After starting 2021 on a stronger footing than it ended 2020, the manufacturing sector has continued to lose growth momentum. While production, new orders and input buying have continued to expand, but growth has stagnated. The latest rise offers hope.

New demand, new work orders and export contracts all marginally increased in May. Strengthening international demand contributed to the uptick in total order books, the survey pointed out. As a result, new export orders expanded markedly in July, following a moderate contraction in June.

Most importantly, the PMI survey showed manufacturing jobs increased after a gap of 15 months.

“It's encouraging to see the Indian manufacturing industry recover from the blip seen in June. Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions,” Pollyanna De Lima, Economics Associate Director at IHS Markit and author of the report, said.

Should the pandemic continue to recede, IHS Markit expects a 9.7 percent annual increase in industrial production for calendar year 2021, she added.

Companies also purchased additional inputs for use in the production process. In turn, goods producers saw an increase in their stocks of purchases during July. The accumulation was marked and followed a decline in June.subhaya

The latest growth led to scarcity of raw material being cited as a key factor causing longer delivery times among suppliers. That said, vendor performance worsened only slightly and to the same extent as in June.

As a result of demand for inputs outstripping supply, there was another substantial increase in purchasing prices. The rate of cost inflation remained above its long-run average, but eased to a seven-month low. However, output charges also increased at a slower rate, the weakest in 2021 so far.

The PMI survey said that July data indicated spare capacity among manufacturers as outstanding business volumes decreased further. The rate of backlog depletion was only slight, however.

Going forward, Indian firms foresee output growth in the year ahead, with the end of the pandemic and rising sales expected to support the upturn. The overall level of positive sentiment rose from June's 11-month low, but remained historically subdued as some companies were concerned about the path of the pandemic.