Manufacturing PMI hits 10-month high
Festive demand keeps factories humming, but Omicron woes weigh
NEW DELHI: The Indian economy is firing on more cylinders as high pent-up demand has helped the manufacturing activity witness a sharp increase in production and sales in November, as companies scaled up input buying encouraged by strengthening demand and improving market conditions.
The Manufacturing Purchasing Managers’ Index, or PMI, rose from 55.9 in October to 57.6 in November, the most substantial improvement in the manufacturing sector’s health in 10 months, IHS Markit said on Wednesday.
A reading above 50 indicates expansion in economic activity and a number below that signals contraction.
The second wave of the pandemic had hit the country in March, affecting manufacturing activity. However, unlike the first wave in 2020, manufacturing activity recouped quickly, hitting an eight-month high in October. India’s manufacturing output grew 5.5% in September quarter while the economy expanded at a robust 8.4% during the same quarter surpassing its pre-pandemic size, raising hope of sustained recovery. However, the Omicron variant of coronavirus has added a fair amount of uncertainty to recovery in global demand which may also impact manufacturing activity as demand for Indian goods may also get adversely impacted.
The fact that firms purchased additional inputs at a higher rate, combined with declines in inventories of finished goods and tentative signs of a pick-up in hiring activity, indicate that production volumes will likely expand further in the near term, said Pollyanna De Lima, economics associate director at IHS Markit. “The key threat to the outlook, in addition to potential new waves of Covid, is inflationary pressures. For now, companies are absorbing most additional cost burdens and lifting output charges only moderately. Should raw material scarcity and shipping issues continue to feed through to purchasing prices, substantial increases in output charges could be seen and demand resilience would be tested,” she cautioned.
On the price front, the data analytics firm said inflationary pressures remained intense amid transportation issues and difficulties among suppliers to source raw materials. “Although manufacturers remained upbeat towards growth prospects, the overall level of positive sentiment slipped to a 17-month low,” it added.