Growth in manufacturing activities eased a bit in February compared to the previous month, but remained at an elevated level, showed a widely-tracked survey on IHS Purchasing Managers' Index (PMI).
PMI inched down to 57.5 in February from 57.7 in January. In the PMI lexicon, a reading above 50 is growth and the one below it is contraction.
Although easing from January, the pace of growth remained sharp in the context of historical data, said a commentary associated with release of data. The headline figure in February remained above its long-run average of 53.6.
Although growth more or less remained at a high level, employment decreased further amid Covid-19 restrictions.
On the other hand, strengthening demand for raw materials and semi-finished items exerted upward pressure on input cost inflation, which picked up to a 32-month high.
Factory gate charges also rose, albeit at a modest and softer pace. Robust demand for inputs led suppliers to hike their fees. Survey members noted higher prices for a number of items such as chemicals, metals, plastics and textiles.
Better demand conditions and successful marketing campaigns reportedly underpinned a further increase in new orders in February. The data showed a rise in pre production inventories in February, the sharpest monthly growth in the survey history. However, post-production stocks fell sharply as companies attempted to deliver purchased goods in a timely manner.
Pollyanna De Lima, economics associate director at IHS Markit, said," Still, the data indicated that production growth could have been stronger should firms have appropriate resources to handle their workloads. This was evident from a quicker rise in outstanding business and another decline in inventories of finished goods."
In GDP data, manufacturing came out of contraction seen in the four consecutive quarters by posting a moderate 1.6 per cent growth in the third quarter of 2020-21.
New export orders also rose halfway through the final quarter of fiscal year 2020/21, albeit at a modest rate that was softer than in January.
According to panel members, the Covid-19 pandemic restricted international demand for Indian goods.
Official trade data showed that merchandise exports rose at a hefty pace of 6.16 per cent in January against a marginal 0.14 per cent in December. Most months in 2020 saw contraction in goods' exports.
Goods producers expect output to increase over the coming 12 months, with the overall level of positive sentiment matching that recorded in January. Optimistic growth projections reflected forecasts of an improvement in economic conditions and the lifting of restrictions as the vaccination programme expands.
A fast nationwide vaccine roll out could provide a further boost to activity normalisation, said Barclays India in a note on PMI.