Factory Activity Growth In India Rises In February, Inflation Remains A Concern, Says Survey

The Manufacturing Purchasing Managers’ Index from February 10 to February 22 improved to 54.9 in February from 54.0 in January

New Delhi: As the third Covid-19 wave receded, factory activity growth in India picked up in February showed a survey, according to a report by Reuters.

The survey, however, was conducted before Russia-Ukraine conflict, which led to an immediate spike in crude oil prices.

As India is world’s third-largest oil importer, crisis will add to inflationary pressure and hurt consumer sentiment more.

According to IHS Markit, the Manufacturing Purchasing Managers’ Index (PMI) from February 10 to February 22 improved to 54.9 in February from 54.0 in January. February’s reading exceeded expectations for 54.3 in a Reuters poll and was above the 50-mark that separates growth from contraction for an eighth month.

Shreeya Patel, an economist at IHS Markit, said, “For now, India’s manufacturing sector has weathered the storm of the Omicron variant, undoubtedly supported by the relatively high inoculation rate.”

The month of February witnessed growth in output and new orders for an eighth month in a row, led by the consumer goods sector on favourable demand and increasing sales. Growth in international demand for Indian manufactured goods rose marginally to a three-month high.

Business expectations for the next 12 months improved and the index rose to a four-month high on hopes of a return to normality and expansion plans. However, firms continued to shed jobs for a third month, although the pace of decline was marginal and the slowest in the sequence.

The input prices index was at a six-month low in February but showed raw material costs had risen for a 19th month, driven by higher prices of metals, cotton, chemicals and rubber.

Factories passed some of those higher expenses to customers. Patel said, “There were, however, some key concerns that continued to threaten growth. Most prominently, cost pressures remained elevated as a result of shortages while delivery times lengthened once again.

India’s economy expanded 5.4 per cent last quarter, slower than the previous two quarters and below 6.0 per cent growth.

A surge in crude oil rates because of the Russia-Ukraine conflict may have a big impact on inflation and the rupee as well as widening India’s current account deficit, slowing growth further.

The Reserve Bank of India (RBI) was expected to raise rates next quarter to combat inflation, but if the crisis deepens it could change those predictions.