India's Manufacturing Sector Shows Strong Recovery, Rises Further In October: PMI

The robust gains in new work boosted production in October as output and new orders expanded at fastest rates in seven months, while business optimism hit a six-month high

India's Manufacturing Sector Shows Strong Recovery | Getty Images (Representative Image)

New Delhi: In a sign that India’s economy is on the path to recovery, manufacturing sector activities have gained further momentum in October with companies scaling up production and stepped up input purchasing in anticipation of further improvements in demand, a monthly survey said on Monday.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) climbed from 53.7 in September to 55.9 in October.

The data shows the strongest improvement in overall operating conditions since February. In PMI parlance, the figure above 50 implies expansion while a score below 50 denotes contraction.

What led to the manufacturing growth?

The robust gains in new work pushed production in October as output and new orders expanded at the fastest rates in seven months, while business optimism hit a six-month high, the survey said.

"Manufacturing sector growth in India continued to gather momentum, with October data showing notably quicker expansions in new orders, production, and input purchasing," said Pollyanna De Lima, Economics associate director at IHS Markit.

The upturn in new work orders was sharp and the fastest in seven months and factory output increased at a sharp pace that was the strongest since March, as per the survey.

"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 the fiscal year 2021/22 should the pandemic remain under control," Lima said.

Companies also noted a significant pick-up in international demand for their goods. New export work rose at a solid pace that was the quickest in three months.

Upbeat business confidence and projects in the pipeline should also support production in the coming months, Lima noted. On the prices front, 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.

Firms intend to develop new products, invest in marketing and focus on customer relations to support growth in the year ahead. "The overall degree of optimism strengthened to a six-month high," the survey noted.

What are the concerns?

"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," Lima said.

Even as there has been an overall improvement in operating conditions, jobs didn't pick up. "This was often linked to sufficient capacity to deal with current workloads and government norms surrounding shift work," Lima said.

(With inputs from PTI)