Manufacturing PMI hits 8-year high of 55.3 in Jan on demand revival

The manufacturing sector, which is blamed for dragging down the economic growth for the current fiscal year, rose to an eight-year high in January, according to the widely-tracked purchasing managers’ index (PMI) survey.   

The IHS Markit India Manufacturing PMI rose from 52.7 in December to 55.3 in January, its highest level in just under eight years. According to PMI parlance, a reading above 50 represents growth and the one below it denotes contraction. 

The growth was driven by a sharp rise in new business orders amid a rebound in demand conditions. This led to a rise in production and hiring activities. 

There was, however, less pressure on prices, says the commentary associated with PMI. The Reserve Bank of India’s Monetary Policy Committee (MPC) will hold its three-day meeting from Tuesday. 

“Manufacturing sector growth in India continued to strengthen in January, with operating conditions improving at a pace not seen in close to eight years," said Pollyanna de Lima, principal economist at IHS Markit.

On the other hand, official advance estimates show that manufacturing is expected to grow by just 2 per cent in the current fiscal year, against 5.7 per cent in the previous year. This, among other factors such as crisis in the non-banking financial companies, is likely to pull down the economic growth to 5 per cent in FY20, the lowest in over a decade. 

In the PMI survey, companies noted the strongest upturn in new business intakes for over five years, which they attributed to better underlying demand and greater client requirements.

The rise in total sales was supported by strengthening demand from external markets, as noted by the fastest increase in new export orders since November 2018.

On the employment front, hiring activity improved in January, with firms increasing employment at the quickest rate in close to seven-and-a-half years. New business growth and projects in the pipeline were cited as the main reasons for job creation.

Meanwhile, Indian manufacturers were more upbeat about the year-ahead outlook for production. Optimism stemmed from forecasts of better demand, new client wins, marketing efforts, capacity expansion, and new product releases.

“To complete the good news, there was also an uptick in business confidence as survey participants expect buoyant demand, new client wins, advertising and product diversification to boost output in the year ahead,” Lima said.

On the price front, there were slower increases in both input costs and output charges, the survey noted.

“Companies also benefited from subdued cost pressures, which enabled them to restrict increases in their fees to some extent,” Lima said.