June manufacturing sees fastest growth in 2018; inflation remains a worry

Manufacturing activity touched a six-month high in June but the outlook remained shadowed by an expected rise in inflation and consequent tighter monetary stance by the Reserve Bank of India (RBI), according to the widely-tracked purchasing managers’ index (PMI). 

PMI went up from 51.2 points in May to 53.1 in June. Owing to the June figure, PMI for manufacturing stood at 51.9 points in the first quarter of 2018-19 against 51.8 points in the fourth quarter of 2017-18. 

This may have some impact on gross domestic product (GDP) figures for the Q1 of FY’19 even as there is no one-to-one correspondence between the PMI and official figures.

Manufacturing conditions improved in June owing to the sharpest gains in output and buoyancy in new orders. 

Reflecting the greater production requirements, firms were encouraged to engage in purchasing activity and raise their staff. Job creation accelerated to the strongest in 2018 so far, even though it remained modest. On the price front, input cost inflation saw the sharpest rise since July 2014, while output charges went up at a stronger pace. Business confidence eased to the weakest since last October.

Aashna Dodhia, author of the PMI report, said, “Looking ahead, there is a note of caution as business sentiment during June remained the weakest since October 2017. The dip in optimism partly reflected concerns of a potential market slowdown in the year ahead.”

The author said some of the key challenges to the 12-month outlook include tighter domestic monetary policy and persistently high inflation. In June, production went up for the 11th month in a row. 

Moreover, the rate of growth was sharp and most pronounced since last December. Panelists linked the higher output to favourable demand conditions. 

Output growth was reported across all market groups.

In tandem with the expansion in output, new business of manufacturers in June rose the sharpest in 2018. There were reports that the strong underlying demand paved the way for new client deals.

New orders from overseas rose for the eighth consecutive month. Moreover, the rate of expansion was solid and accelerated the fastest since February. Anecdotal evidence pointed to stronger demand from key international markets.