Manufacturing expands fastest in three months

Of the three previous months, India’s manufacturing output expanded at fastest pace in February. However, the sector faces rising input costs, particularly metals, according to Purchasing Managers’ Index (PMI) compiled by HSBC. The index also shows that employment in the manufacturing sector declined in India in February compared to the previous month.

PMI stood at 57.9 points in February, up from 56.8 points in January. The index shows that new orders received by manufacturers increased substantially in February.

The rate of growth in manufacturing has accelerated for the second successive month. Analysts attributed the latest rise in new business to ongoing improvements in market conditions, increased marketing and good quality goods.

New export orders also expanded in February and regained momentum following January’s three-month growth low. The rise in overall new business supported further growth of output at a rate that was broadly similar to that recorded in January.

However, a further rise in backlogs of work suggested that pressure on production capacity remained. While the extent to which outstanding business accumulated weakened, the period of growth now stretches to 11 months.

Input prices faced by manufacturers in India increased sharply in February. The rate of input cost inflation accelerated for an eighth successive month to the fastest since data collection began in 2005.

Higher raw material prices, particularly for metals, were the main drivers of the latest rise in costs. Output prices also increased, but at a slightly weaker rate than in January.

HSBC Chief Economist for India & Association of Southeast Asian Nations (Asean) Leif Eskesen said, “The momentum in India’s manufacturing sector strengthened yet again in February, continuing the good start to the year...However, manufacturers are facing ever steeper increases in input costs reflecting the tightness of labour markets and rising material costs, which will continue to add upward pressures on output prices.”

He said this calls for further tightening of macroeconomic policies to tame the growing inflation pressures. PMI above 50 points means expansion in manufacturing, while below 50 points means contraction.

PMI is not an official index of industrial production (IIP) in India. IIP sometimes does not match the conclusions of PMI.

While PMI is showing that Indian manufacturing is on the upswing, IIP shows it has not been growing much in the months of November and December.