India’s manufacturing continued to be robust in March, expanding at the same pace as in February. But inflationary pressures intensified as both input and output prices rose sharply, according to HSBC Purchasing Managers’ Index (PMI), prepared by financial information services company Markit.
The index was unchanged at 57.9 in March from February, the highest since November 2010.
PMI measures the health of manufacturing sector and is based on a survey of around 500 companies. An index level above 50 means the manufacturing sector is expanding and an index level below 50 means it is contracting.
The latest data indicated a marked strengthening in business conditions in the manufacturing sector, Markit said. However, the outcomes of PMI may not necessarily be in line with official Indian data, Index of Industrial Production. According to the latest figures, manufacturing growth fell to 3.3 per cent in January from 17.9 per cent a year earlier. The next two months may not be significantly different.
The report said Indian manufacturers witnessed a substantial rise in new business received in March. Moreover, the rate of new order growth touched a 31-month high.
The sharp growth in overall new orders supported a further rise in output. However, the rate of output growth was broadly in line with February. Subsequently, backlogs rose at the fastest pace in four months. It suggests manpower and material shortages also contributed to the accumulation of outstanding business.
The report said employment in the manufacturing sector fell for the third consecutive month in March, as manufacturers continued to struggle to fill vacant positions.
Purchasing activity rose substantially, reflecting sustained growth in new orders and output. Moreover, the increase in input buying was the fastest since February 2008. Subsequently, stocks of purchases also rose.
Leif Eskesen, chief economist for India & Asean at HSBC, said, “The momentum in India’s manufacturing sector held up well in March, suggesting that growth is not an immediate concern.”
Inflationary pressures intensified during March, as both input and output prices rose at faster rates than in the previous survey period.
Input cost inflation was the strongest in the series history, driven by higher raw material prices. This led to a further marked rise in charges, the second-fastest in the history of the series.
Eskesen said manufacturers were facing ever steeper increases in input costs due to tight labour markets and rising material costs, increasingly being passed on to output prices.
In fact, this was witnessed in February as well, when wholesale price inflation unexpectedly rose to 8.31 per cent from 8.21 per cent in the previous month. This was despite food inflation coming down, since the rate of price rise in manufactured products moved up.
Eskesen said rising prices called for further tightening of monetary policy to tame inflationary pressures.
The Reserve Bank of India has already raised policy rates eight times since early 2010.