India's manufacturing sector activity re-entered the growth territory in August, driven by a rebound in production volumes and new work, amid an improvement in customer demand following the resumption of business operations, a monthly survey showed on Tuesday.
The headline seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) rose from 46 in July to 52 in August, signalling an improvement in operating conditions across the manufacturing sector following four consecutive months of contraction.
In April, the index had slipped into contraction mode, after remaining in the growth territory for 32 consecutive months. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. "August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards a recovery from the second quarter downturn. The pick-up in demand from domestic markets gave rise to upturns in production and input buying," Shreeya Patel, Economist at IHS Markit, said.
Despite an expansion in new orders, job shedding continued in the Indian manufacturing sector. The relocation of employees following COVID-19 pandemic was often linked to the reduction in staffing numbers. "However, not all was positive in August, delivery times lengthened to another marked rate amid ongoing COVID-19 disruption. Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers," Patel said.
The survey noted that the decline in foreign exports weighed slightly on overall new orders as firms cited subdued demand conditions from abroad. However, new business received by Indian manufacturers expanded at the fastest pace since February. On the prices front, higher raw material costs due to supplier shortages and transportation delays stemming from the COVID-19 pandemic, resulted in rising input prices during August.
"The rate of input price inflation was solid, following four monthly declines in cost burdens. Firms, however, continued in their efforts to drive sales amid greater competitive pressure and reduced their selling prices further," Patel said. Looking ahead, Indian manufacturers remained optimistic for the next 12 months. Positive sentiment was often attributed to hope of the passing of COVID-19 pandemic, improving client demand, and new business wins, the survey said.