India's Manufacturing PMI rises to 55.9 in October as gains in new work boost production growth
A view of a car manufacturing facility

India's Manufacturing PMI rises to 55.9 in October as gains in new work boost production growth

New Delhi, November 1, 2021

The IHS Markit India Manufacturing Purchasing Managers' Index (PMI) rose from 53.7 in September to 55.9 in October, remaining in expansion territory for the fourth month in a row and pointing to the strongest improvement in overall operating conditions since February this year.

"Manufacturing sector growth in India gained steam in October as companies scaled up production in line with a substantial upturn in new work intakes. Firms stepped up input purchasing amid stock-building efforts and in anticipation of further improvements in demand, while business optimism hit a six-month high," a press rekease from IHS Markit said.

"Panellists continued to report rising prices for several materials and transportation, with overall input costs increasing at the sharpest rate since February 2014. Subsequently, selling charges were lifted again," it said.

Amid reports of improved market confidence, rising requirements among clients and successful marketing, new orders continued to expand in October. The upturn was sharp and the fastest in seven months. Similarly, factory output increased at a sharp pace that was the strongest since March, the release said.

"While strong growth of both sales and production were noted in each of the three broad areas of the manufacturing sector, it was in intermediate goods that the sharpest rates of expansion were recorded," it said.

In addition to reporting a substantial increase in total new orders, Indian companies observed a notable pick-up in international demand for their goods. New export work rose at a solid pace that was the quickest in three months.

With the aim to proceed with production schedules as planned, manufacturers bought additional inputs in October. Quantities of purchases rose at a robust rate that was the fastest since April.

"At the same time, companies noted a further increase in supplier prices. The overall rate of input cost inflation surged to a 92-month high. Anecdotal evidence highlighted higher chemical, fabric, metal, electronic component, oil, plastic and transportation costs," the release said.

Some firms opted to pass part of the additional cost burden on to their clients by lifting output charges. However, with the vast majority of manufacturers leaving their fees unchanged, the overall rate of inflation was moderate.

Despite the notable upturn in new orders, Indian manufacturers were able to keep on top of their workloads, as signalled by another reduction in backlogs. The pace of depletion was only fractional, however.

The survey report said that this lack of pressure on capacity, besides government guidelines surrounding shift work, meant that employment continued to decline. However, the rate of job shedding was marginal.

"Predictions that business conditions will improve further as the pandemic retreats boosted confidence. Firms also 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.

"Finally, stocks of purchases rose at a near-record rate amid strong input buying growth. Conversely, post-production inventories fell sharply in October," the release added.

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

"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 fiscal year 2021/22 should the pandemic remain under control. Upbeat business confidence and projects in the pipeline should also support production in the coming months.

"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.

"Despite the overall improvement in operating conditions, jobs failed to increase. This was often linked to sufficient capacity to deal with current workloads and government norms surrounding shift work," she added.

NNN

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