Sales growth boosts production in July, PMI at two-month high of 52.5

Economic growth in India's manufacturing industry was sustained in July with companies scaling up production in response to a quicker upturn in factory orders, according to IHS Markit India Manufacturing Purchasing Managers' Index (PMI) released on Thursday.

This coupled with optimistic growth projections underpinned job creation and an uptick in input purchasing. As has been the case in 2019 so far, the sector continued to register a general lack of inflationary pressures. Both input costs and output charges increased at marginal rates that were broadly negligible in the context of historical survey data.

Rising from 52.1 in June to 52.5 in July, the IHS Markit India Manufacturing PMI was consistent with further strengthening in the health of the sector. The latest reading was slightly higher than the average for the calendar year 2018 (52.3) but below its long-run trend (53.9).

"Survey participants linked the uptick in growth to a pick-up in demand, mostly stemming from successful marketing efforts, competitive pricing and favourable public policies," said Principal Economist at IHS Markit Pollyanna De Lima. "We see from underlying data that the domestic market provided the main impetus to sales growth," she said in a statement.

Aggregate manufacturing production in India increased in July as has been observed on a monthly basis for two years. The rate of expansion was below its long-run average but improved from June.

The main factor boosting production was a sustained rise in new work inflows. Despite quickening from June, the pace of expansion was moderate in the context of historical survey data.

New export orders also continued to rise but here a slowdown in growth was noted. In fact, external sales rose to the least extent since April 2018 as factories took a hit from subdued global trade flows.

"The relatively negligible increases in input costs and output charges signalled by the PMI survey in July suggest that we will likely see a further reduction in India's benchmark interest rate as the Reserve Bank of India continues its effort to support economic growth," said De Lima.