India's manufacturing sector activity continued to expand in August, with the S&P Global Purchasing Managers' Index (PMI) rising to a three-month high of 58.6, data released on September 1 showed.
The manufacturing PMI stood at 57.7 in July.
The gauge of manufacturing sector activity in August is above the key level of 50, which separates expansion in activity from contraction, for the 26th month in a row.
"The PMI results for India painted a vibrant picture of the nation's manufacturing landscape in August," Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said.
"Robust and accelerated increases in new orders and production suggest that the sector looks set to provide a strong contribution to the second quarter (fiscal) economic growth."
The August manufacturing PMI number comes a day after the release of April-June GDP data, which showed the Indian economy grew at a four-quarter high of 7.8 percent, broadly in line with expectations. However, the manufacturing sector grew by a mere 4.7 percent, dragging down overall growth.
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In a press briefing after the release of the GDP data, Chief Economic Adviser V Anantha Nageswaran rejected any suggestions of weakness in the sector's performance, saying high-frequency indicators — such as the PMI — "do not show that the manufacturing sector is in particular distress".
The fine print
In August, the manufacturing PMI rose on the back of new orders and output increasing at the quickest rates in nearly three years. Export orders also helped, rising for the 17th month in a row and to the greatest extent since November.
With demand strong, manufacturers looked to replenish stocks, with input stocks rising at the second-strongest pace in more than 18 years of data collection, S&P Global said, adding that several respondents to its survey noted attempts to safeguard against potential raw material shortage. Aiding the build-up of raw material inventory was reduced supplier delivery times, which fell for the sixth straight month in August.
To meet higher demand, manufacturers increased hiring, though overall employment rose at the slowest pace in four months.
On the price front, S&P Global said "signals were mixed" in August as input price inflation exceeded the rise in selling prices.
"The latter rose at the slowest pace in four months, whereas cost inflation picked up to its strongest in a year, with companies noting higher fees for cotton, foodstuff, rubber, steel, and machinery spare parts," S&P Global said.
The level of input and output inflation as per the manufacturing PMI survey will be keenly eyed by policymakers considering official data shows wholesale inflation to be in negative territory in July even as retail inflation was at a 15-month high of 7.44 percent.
"The presence of stronger cost inflationary pressures serves as a reminder of the challenges inherent in managing growth. Firms addressed rising input prices by lifting selling charges. However, the need to maintain
competitiveness helped restrict charge inflation," de Lima said.
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