Manufacturing activity remained strong in feb

India’s manufacturing activity eased a little in February compared to January but remained robust, a private survey found, as firms lifted input inventories at a record pace with strong growth in sales and production.

Data released by analytics firm IHS Markit on Monday showed Purchasing Managers’ Index (PMI) for the manufacturing sector fell marginally to 57.5 in February from 57.7 in January. A figure above 50 indicates expansion, while sub-50 signals contraction. The headline figure, however, remained above its long-run average of 53.6.

“Better demand conditions and successful marketing campaigns reportedly underpinned a further increase in new orders during February. Although easing from January, the pace of growth remained sharp in the context of historical data,” IHS Markit said.

In comparison, China’s PMI slipped to 50.9 in February from 51.5 in January, as firms recorded slower rises in both output and new work but stayed in positive territory for 10 straight months.

According to the latest Industrial Outlook Survey of the manufacturing sector by RBI released last month, manufacturers expect expansion in production volumes, new orders and job landscape to continue in the March quarter. However, they also expect higher pressures from cost of finance, purchase of raw materials and salary outgo.

Manufacturing activity remained strong

Pollyanna De Lima, economics associate director at IHS Markit, said Indian goods producers reported a healthy inflow of new orders in February, a situation that underpinned a further upturn in output and quantity of purchases. “Still, the data indicated that production growth could have been stronger should firms have appropriate resources to handle their workloads. This was evident from a quicker rise in outstanding business and another decline in inventories of finished goods,” she said.

February data pointed to the strongest increase in input inventories in the survey history as firms reacted to rising production needs by lifting purchasing activity. The expansion in input buying was the fastest in almost a decade. “In turn, robust demand for inputs led suppliers to hike their fees. Survey members noted greater prices for a number of items such as chemicals, metals, plastics and textiles. The overall rate of cost inflation hit a 32-month high,” IHS Markit said.

Despite robust production and sales growth, payroll numbers fell further amid the observance of government guidelines aimed at halting the spread of covid by implementing shifts. The decline was the 11th in successive months.

De Lima said some companies indicated that capacity expansion through hiring was not currently possible due to existing restrictions on labour working hours. “However, many hope that such controls will shortly be removed as the vaccination programme widens. Once larger parts of the population are immunized against covid and restrictions start to be lifted, companies expect a gradual improvement in economic conditions which they hope will translate into output growth. The overall degree of business optimism was the joint highestfor three months,” she said.

India’s GDP recovered in Q3 to expand at 0.4% after two successive quarters of historic contraction induced by the coronavirus pandemic, signalling that Asia’s third largest economy may be on a path of slow but sustained recovery.

Date : 02 Mar 2021

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