Manufacturing on strong footing | The Financial Express

India’s manufacturing sector activity in August reported the second-strongest improvement in operating conditions in nine months, signalling continued economic momentum and strong business confidence, according to the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI).

The index was little changed from July’s reading of 56.4, posting 56.2 in August.

According to the PMI survey, manufacturing activity in August was boosted by strengthening demand conditions and softening input cost inflation. Production volumes were also supported by a pick-up in exports and upbeat projections for the year-ahead outlook. Firms were at their most optimistic for six years.

The PMI data came on the back of two sets of data released on Wednesday that pointed to weakness in India’s manufacturing industry. According to the national income data, manufacturing activity remained subdued in June quarter, with growth of 4.8% despite a favourable base effect. Analysts attributed this to the sector being constrained by supply issues and the fact that a part of the local demand was met through imports. Besides, growth in the output of eight core infrastructure sectors decelerated sharply for a second straight month to hit a six-month low of 4.5% in July from a year before, as a conducive base effect waned. The core sector growth was as much as 13.2% in June and 19.3%, a 13-month peak, in May.

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According to the PMI data, manufacturing production volumes were supported by a pick-up in exports and upbeat projections for the year-ahead outlook. Firms were at their most optimistic for six years, it added. The index stayed above the 50-mark that separates growth from contraction for the 14th straight month in August.

“Indian manufacturers continued to benefit from the absence of Covid-19 restrictions, with rates of growth for both output and new orders picking up yet again to the strongest since last November,” Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said.

The latest results also indicated that recent inflation concerns somewhat faded, as business sentiment strengthened further from June’s 27-month low.

The degree of optimism was at its highest in six years. Predictions of stronger sales, new enquiries and marketing efforts all boosted confidence in August, the survey said.

On the inflation front, although manufacturers continued to signal higher prices for a wide range of materials in August, the overall rate of cost inflation softened to a one-year low as commodity prices (particularly aluminium and steel) moderated.

“Inflation concerns, which had dampened sentiment around mid-year, appear to have completely dissipated in August as seen by a jump in business confidence to a six-year high,” Lima said.

The rate of input cost inflation softened to the weakest in a year, but the passing of higher freight, labour and material prices to clients kept the pace of increase in output prices little changed from July, the survey said.

However, Crisil noted on Thursday that global growth is projected to slow, as central banks in major economies withdraw easy monetary policies to tackle high inflation. “This would imply lower demand for our exports. Together with high commodity prices, especially oil , this translates into a negative in terms of a trade shock for India. High commodity prices, along with depreciating rupee, indicate higher imported inflation,” it added.

(With PTI inputs)