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India's manufacturing PMI rises to 55.9 in October

Nov 01, 2021 10:52 AM IST

India’s manufacturing PMI stood at 55.9 in October, up from 53.7 in September and 52.3 in August.

Representational Image (Image: Shutterstock)

India’s manufacturing activity continued to improve in October after setting off on the path to recovery from September onwards as strengthening demand conditions amid the easing of COVID-19 restrictions boosted sales.

According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on November 1, manufacturing PMI stood at 55.9 in October, up from 53.7 in September and 52.3 in August. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.

Amid reports of improved market confidence, rising requirements among clients and successful marketing, new orders continued to expand in October. The upturn was sharp and the fastest in seven months. Similarly, factory output increased at a sharp pace that was the strongest since March.

This would come as good news for policymakers as the PMI had hit a slowdown bump in its road towards growth back in July, when the index had fallen below the critical 50.0 mark for the first time in a year.

After starting 2021 on a stronger footing than it ended 2020, the manufacturing sector has continued to see-saw between rising and suddenly losing growth momentum. As a result, PMI has been volatile throughout 2021. The latest rise offers hope as output, new orders, exports, quantity of purchases and input stocks all strengthened.

While strong growth of both sales and production were noted in each of the three broad areas of the manufacturing sector, it was in intermediate goods that the sharpest rates of expansion were recorded. Back in September, consumer goods had been the brightest spot.

Wherever growth was reported, panel members cited favourable market conditions and improved sales volumes.

Export demand rises

In addition to reporting a substantial increase in total new orders, Indian companies observed a notable pick-up in international demand for their goods, the PMI survey said. New export work rose at a solid pace that was the quickest in three months.

"With companies gearing up for further improvements in demand by building up their stocks, it looks like manufacturing activity will continue to expand throughout the third quarter of fiscal year 2021/22 should the pandemic remain under control. Upbeat business confidence and projects in the pipeline should also support production in the coming months," 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.

However, after subsiding earlier in 2021, cost inflationary pressures continued to intensify in October. Strong demand for scarce products contributed to the increase in input costs, as did rising fuel and transportation rates.

"Of concern, input cost inflation accelerated substantially in October — to a near eight-year high — as strong global demand for scarce raw materials continued to push up prices for these items. Some manufacturers hiked their fees in response, but for now the overall rate of charge inflation was moderate," De Lima said.

The overall rate of input cost inflation surged to a 92-month high. Anecdotal evidence highlighted higher chemical, fabric, metal, electronic components, oil, plastic and transportation costs.

Output prices, however, increased at a slower and only moderate rate. This was due to the vast majority of manufacturers leaving their fees unchanged.

Also, the survey noted that despite the overall improvement in operating conditions, jobs failed to increase. This was often linked to sufficient capacity to deal with current workloads and government norms surrounding shift work.

This lack of pressure on capacity, besides government guidelines surrounding shift work, meant that employment continued to decline. That said, the rate of job shedding was marginal.

Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.
first published: Nov 1, 2021 10:52 am
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