India’s manufacturing sector growth at 4-month high

Aug 03, 2016

The Indian manufacturing sector has continued with its upward trend and posted a 4-month high in July, according to a monthly survey. This comes on the back of expansion in new orders and output. Posting a 4-month high of 51.8 in July (it was 51.7 in June), the Nikkei India Manufacturing Purchasing Managers’ Index (PMI), which is a composite single-figure indicator of manufacturing performance, has indicated further improvement in overall business conditions across the sector. Input buying has increased at the fastest rate since August 2015, whereas input cost inflation is at a 5-month low.

“India’s manufacturing economy is reviving at the beginning of the second half of 2016 after the slowdown seen in the April-June quarter, as growth of both production and new orders continues to strengthen in July,” said Pollyanna De Lima, Economist and author of the report.

The improved performance of the manufacturing sector in July will contribute to faster increases in output and buying levels. Reinforced by superior demand from both the domestic and external markets, total new business rose at the fastest pace in July since March. The expansion has been led by consumer goods producers. The growth of new export orders has climbed to a 6-month high, together with increases in both the consumer and capital goods categories. Indian manufacturers stepped up production in July, with the month’s upward trend being the most marked since March. The overall increase in output has been led by consumer goods producers, although growth was also recorded in the intermediate goods category. Meanwhile, input cost inflation has softened and the output prices have increased at the fastest rate in 3 months.

No growth in employment

What comes as a dampener though is the negligible growth in employment. Although a few firms have added to their workforce, the overall job creation has been negligible. This is despite the GDP growth numbers of 7.9% in Q4 of 2015-16.

“Although output expanded at the fastest rate since March and backlog accumulation intensified, businesses refrained from creating jobs. The ongoing muted trend for employment indicates that companies remain somewhat uncertain regarding the sustainability of the upturn,” added Lima.

Effect on RBI’s interest rates

In the policy review meeting in June, the Reserve Bank of India (RBI) had kept interest rates intact, citing rising inflationary pressure. However, there has been a hint that a reduction in interest rates could be on the radar later this year if there is a good monsoon.

“The industry hopes for a further reduction in rate from the RBI. This will help boost investment and will provide a thrust to the manufacturing sector small and medium enterprises,” said Shashank Dixit, CEO, Deskera, a leading Cloud-based business software provider in the Asia-Pacific region.

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