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Business activity in India’s manufacturing sector continues to rebound. The latest data published by IHS Markit showed that India’s Purchasing Managers’ Index (PMI) grew at the fastest pace in ten months in November to 57.6 from 55.9 in October. Moreover, the headline figure was well above its long-run average of 53.6. A reading above 50 indicates expansion and below the threshold points to contraction.
Companies scaled up input buying, which in turn led to the second-quickest accumulation in stocks of purchases since data collection started nearly 17 years ago, said the survey report. Manufacturers said that strengthening demand, improving market conditions, and successful marketing boosted sales in the month gone by. The new orders sub-index and the output sub-index of the PMI saw sharp improvement in November.
Another bright spot was that hiring activity among manufacturers also saw an improvement, after three successive months of downturn.
On the flipside, inflation remains a pain. The latest data showed that cost inflationary pressures remained intense amid transportation issues and difficulties among suppliers to source raw materials. Input prices increased at a rate that was broadly similar to October's 92-month high. It should be noted that manufacturers are passing on the burden of increased costs to consumers but the quantum of price hikes is moderate.
Consequently, even though manufacturers remained upbeat about growth prospects, the overall level of positive sentiment slipped to a 17-month low. Companies were concerned that inflationary pressures could dampen demand and restrict output in the year ahead.
While inflationary pressures are now well-known, a new concern in the form of the Omicron variant of the coronavirus has emerged. Economists note that since this survey was conducted before the new variant was identified, there are downside risks to manufacturers’ optimism.
“Looking ahead, the outlook is clearly mired with uncertainty given the newly-emerged Omicron strain of COVID-19. For many EMs, including India where vaccine coverage is still low, the key question is whether the new strain proves more transmissible and deadly. If it is, then policymakers may eventually be forced to tighten containment measures, which would set back the recovery yet again," Darren Aw, Asia economist at Capital Economists Ltd said in a report on 1 December.
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