India's manufacturing PMI rose by 2 points to 54.7 in December; highest in 5 years

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) rose to 54.7 in December from 52.6 in November. The index numbers for December are the highest in the past five years. Experts attribute operating conditions improving in December due to an uptick in new orders. The growth in manufacturing was recorded all the three verticals - consumer, intermediate and investment.

The index has crossed the 50-point mark for the consecutive fifth month. Index reading above 50 point shows there's economic expansion, while a reading below 50 points toward contraction. "Strong business performance was underpinned by the fastest expansions in output and new orders since December 2012 and October 2016 respectively," said Aashna Dodhia, an economist at IHS Markit and author of the report. He added that evidence suggested there's stronger demand from home and global markets.

A boost was seen on the staffing level by December 2017, said the survey, adding that job creation had been positive in the manufacturing sector since August 2012. On the price front, Dodhia said July's Goods and Services Tax (GST) continued to lead to greater raw material costs, with input cost inflation accelerating to the sharpest since April.

"However, the sector continues to face some turbulence as delayed customer payments contributed to greater volumes of outstanding work. On the price front, July's Goods and Services Tax (GST) continued to lead to greater raw material costs, with input cost inflation accelerating to the sharpest since April. As consumer spending recuperates, firms were restricted in their ability to pass on higher cost burdens to clients that further placed upward pressure on firms' margins," Dodhia said, adding that challenges remain as the economy adjusts to recent shocks, but the overall upturn was robust compared to the trend observed for the survey history.  

Meanwhile, the Future Output Index signalled the strongest level of confidence in three months, with more than one-in-five survey participants forecasting higher production, which is expected to give boost to the manufacturing sector in the next couple of months. Expectations of an improvement in economic conditions were cited as the key factor behind positive sentiment.

The Purchasing Managers' Index (PMI), which is based on indicators including new orders, inventory levels, production, supplier deliveries and employment environment, shows the economic health of the manufacturing sector.