India Manufacturing sector growth at three-month high

Supported by a stronger increase in new business inflows, Indian manufacturers raised production at a faster rate during June. At 51.7 in June, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' IndexTM (PMI), pointed to a further improvement in the health of the sector.

The favourable operating environment encouraged businesses to purchase additional inputs, but was insufficient to generate jobs. Meanwhile, cost inflation eased, while output charges were broadly unchanged. Rising from 50.7 in May, the headline index was at a three month high.

The main contributing factors to the upward movement in the PMI were stronger rates of growth in new orders and output, both of which reached three-month highs in June. Incoming new work rose across the three broad areas of the manufacturing economy, as did production. The best-performing category was consumer goods.

Offsetting the decline seen in May, the first in 32 months, new export orders increased in June. However, the rate of expansion was only slight and below the long-run series average. Two of the three monitored market groups recorded higher levels of new business from abroad, the exception being intermediate goods. Boosted by sustained growth of order books, buying levels rose in June.

Despite being slight, the rate of expansion was the quickest in the current six-month sequence of increases. Purchasing activity grew in each of the three sub-sectors, led by consumer goods. Data implied that the upturn in buying levels placed pressure on the capacity of vendors, as average delivery times lengthened to the greatest extent since April.

June saw input costs increase for the ninth month running, with survey participants reporting higher prices paid for metals, chemicals, plastics, textiles, petrol, food and paper. That said, the rate of inflation eased to the slowest since March, and was moderate overall. Concurrently, factory gate charges were broadly unchanged in June. Where average selling prices remained the same as in May, at 95% of firms, panellists reported efforts to remain competitive.

There was broadly no change to manufacturing employment in India during June, with some panellists reporting sufficient staff to work on both new and existing projects and others noting shortages of skilled labour in the country. Finally, there were diverging trends with regards to stock levels in June, as post-production inventories dipped and holdings of purchases increased.

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