Indian factories are back in action, going by the Nikkei Manufacturing Purchasing Managers’ Index (PMI). The index for India surged to 55.3 in January, up from 52.7 the previous month. The PMI, compiled by IHS Markit, was at its highest in about eight years, reflecting a bounce in new orders that would generate output. An index number above 50 indicates expansion, while one below 50 means contraction. The private survey also reported that a sales pick-up has prompted manufacturers to hire new workers at the fastest clip in over seven years.
Given the protracted slowdown that India’s economy has been experiencing, it would be premature to say that the worst is behind us based on a single PMI reading. The momentum needs to be kept up for at least a couple of more months for a trend to form that signals a recovery. If industrial demand gets onto a firm uptrend and capacity utilization looks headed for exhaustion, private investment would see a much-needed revival.
The Union budget presented by finance minister Nirmala Sitharaman on Saturday was panned by critics for not going the whole hog in an effort to boost a flailing economy. It was held as neither stimulative nor reformist, able to address neither cyclical nor structural drags on growth. Yet, if private production begins to shake off its sluggishness, a significant aspect of the overall economic stasis would be resolved. After all, it is well known that public investment is not as efficient in spurring growth as the private kind.
