Manufacturing activity broke free from a four-month long contraction in the aftermath of the Covid-19 pandemic and subsequent nationwide and state lockdowns to rise in August. This provides relief a day after the official data showed gross domestic product rate contracted a massive 23.9 per cent in the first quarter of the current fiscal year.
According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on Tuesday, manufacturing PMI stood at 52 in August, up from 46 in July. In PMI parlance, a print above 50 means expansion. A sub-50 print signals contraction. PMI had fallen to a historic low of 27.4 in April, but had been steadily climbing since.
On the other hand, the official data showed that manufacturing had contracted 39.3 per cent in the first quarter of 2020-21. This story was also told by PMI, which contracted for four straight months till July.
Output and new orders expanded at the fastest pace since February. Production growth was largely driven by greater client demand for goods, following resumption of business operations, according to firms.
However, the decline in foreign exports weighed slightly on overall new orders, as firms cited subdued demand conditions from abroad. The overall new business received by Indian manufacturers expanded at the fastest pace since February.
“The August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards recovery from the second-quarter downturn. The pick-up in demand from domestic markets gave rise to upturn in production and input buying,” said Shreeya Patel, economist at IHS Markit. But Patel also warned that in August, delivery times lengthened to another marked rate amid ongoing Covid-19 disruption, hinting at further speed bumps to growth in the upcoming months.
Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers, the survey showed. A nationwide lockdown in April, coupled with a crash in export orders, had led to conditions across sectors falling by the biggest margin ever and new businesses collapsing at record pace. Since then, jobs have been hit the most and employment numbers saw a further slide in July.
But come August, manufacturers blamed the relocation of employees, following the outbreak of the pandemic for reduction in staff numbers. The survey showed that the pace of contraction in workforce numbers softened since July, but remained strong overall.
Capacity restraints in employment drove the rise in incomplete work at Indian manufacturers midway through the third quarter. The rate of increase in backlogs was the fastest since December 2012. On the other hand, supply chains were disrupted for the sixth consecutive month, with firms citing transportation restrictions, supplier delays, and capacity pressures as the main drivers of lengthening delivery times. Higher levels of production supported a modest rise in the quantity of purchases during August. However, firms noted a limited availability of goods, which triggered a further reduction in stocks of purchases, thereby extending the current rate of depletion to five months.
Reports of higher raw material costs due to supplier shortages and transportation delays stemming from the pandemic, resulted in rising input prices during August. Cost burdens rose for the first time since March, with the rate of input price inflation at its highest since November 2018.
Despite rising cost burdens, Indian manufacturers reported lower factory gate charges due to competitive pressures and efforts to boost sales.
However, the rate of decline eased to only a fractional pace that was the weakest in the current sequence of decrease. Looking ahead, Indian manufacturers remained optimistic for the next 12 months. Positive sentiment was often attributed to improving client demand and new business wins.
Nonetheless, market uncertainty and the onset of a global recession weighed on the degree of confidence which was below the series average in August.