India PMI manufacturing up at three-month high in July as lockdowns ease

Manufacturing activity in India rebounded to a three-month high in July after contracting due a lockdowns in parts of the country to contain Covid-19, said the IHS Markit purchasing managers' index(PMI) on Monday.

The index rose to 55.3 in July from 48.1 in June. A reading below 50 shows contraction and the one above that means growth. Manufacturing in June slipped into contraction for the first time in 11 months.

The PMI corroborated upswing in other parameters of the economy. Goods and Services Tax (GST) mop-up in July rose to Rs 11,6393 crore, compared to Rs 92849 crore in June. GST collections in June fell below the Rs 1 trillion mark for the first time in eight months.

“It's encouraging to see the Indian manufacturing industry recover from the blip seen in June. Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions," said Pollyanna De Lima, economics associate director at IHS Markit, the financial information company which conducted the PMI survey.

Factory orders rose amid reports of improved demand and the easing of restrictions. Strengthening international demand contributed to the uptick in total order books. New export orders expanded markedly in July, following a moderate contraction in June.

De Lima said if the pandemic continues to recede, a 9.7 per cent annual increase in industrial production for calendar year 2021 is expected.

Together with expansion in output, new orders, exports, quantity of purchases and input stocks, a marginal increase in employment ended a 15-month sequence of job shedding.

"The PMI also brought the positive news of job creation in the manufacturing sector. Although marginal, the rise in employment was the first since the onset of COVID-19. With firms' cost burdens continuing to rise, however, and signs of spare capacity still evident, it's too early to say that such trend will be sustained in coming months," De Lima said.

There was an increase in input costs. Output charges rose only slightly, however, as several companies absorbed additional cost burdens amid efforts to boost sales. However, the Reserve Bank of India is likely to maintain status quo in its policy rate in this month's policy review as inflationary pressures have begun to ease.

She said policymakers would welcome evidence that inflationary pressures are starting to abate. Firms signaled the slowest increases in input costs and output charges for seven months.

"Hence, we expect the RBI to keep interest rates unchanged in its August meeting as it continues to support growth," she said.

Respondents to the survey foresee output growth in the year ahead, with the end of the pandemic and rising sales expected to support the upturn. The overall level of positive sentiment rose from June's 11-month low, but remained historically subdued as some companies were concerned about the path of the pandemic.