September manufacturing grows for 2nd month, hiring picks up

Manufacturing activity in India expanded in September for the second month in a row, driven up by increase in output and new orders, even as their growth pace remained weak in the context of historical trend, a survey said today.

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) came in at 51.2 in September, little changed from its August reading, pointing to an ongoing recovery in business conditions, post GST launch. The figure was below the long-run trend of 54.1.

A reading above 50 denotes expansion and one below this mark means contraction.

"September data painted an encouraging picture as the sector continued to recover from the disruptions caused by the introduction of GST in July," said Aashna Dodhia, Economist at IHS Markit, and author of the report.

Dodhia further said: "Business confidence strengthened among manufacturers as they reportedly anticipate long-term benefits from recent government policies. This was confirmed as the sector experienced meaningful gains in employment."

On the back of more new work orders, Indian manufacturers raised their staffing levels at the fastest pace since October 2012.

On the prices front, the survey said that though cost pressure intensified during September, inflation remained weaker than the long-run trend.

The strengthening of the Indian rupee may put a squeeze on efforts to revive demand for Indian goods from export markets.

"The lingering effects of recent economic shocks continue to cast a shadow on economic growth as IHS Markit downgrades its real GDP growth forecast to 6.8 per cent for fiscal year 2017-18," Dodhia said, adding that "it will be interesting to see if India's new economic advisory council will bolster its path to recovery".

India's economic growth slipped to a three-year low of 5.7 per cent during April-June, underscoring the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities.