GST rate cut boosts Nov manufacturing PMI to 52.6, fastest since Oct 2016

India's manufacturing sector in November recorded the strongest improvement in business activity in 13 months as new orders picked up supported by reduction in GST rates and strong demand conditions, a monthly survey said today.

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) rose from 50.3 in October to 52.6 in November, indicating substantial improvement of operating conditions in the country's manufacturing sector.

This is for the fourth consecutive month that the index has come in above 50 point mark that separates expansion from contraction.

Survey respondents said a combination of higher order book volumes and a decrease in GST rates largely contributed to greater production.

"Growth in output and new orders picked up to the fastest since October 2016, reportedly supported by reductions in GST rates and stronger underlying demand conditions," said Aashna Dodhia, Economist at IHS Markit and author of the report.

However, the headline PMI remained below the average seen since the inception of the survey in March 2005.

Moreover, stronger factory production levels translated into the fastest rate of employment creation since September 2012. Besides, export growth rose for the first time in three months as overseas demand for Indian goods improved.

On the price front, input cost inflation quickened to the fastest since April, but firms were unable to fully pass on higher cost burdens to price-sensitive clients.

"Underlying data indicated that the central bank is less likely to adopt an accommodative stance as input cost inflation intensified to the fastest since April," the report noted.

Dodhia added that the current phase of expansion led to a pick up in business sentiment as "growth momentum seems likely to continue over the near-term".

Reversing a five-quarter slide in GDP growth, Indian economy bounced back from a three-year low to expand by 6.3 per cent in July-September as manufacturing revved up and businesses adjusted to the new GST tax regime.