Home >Economy >India’s July manufacturing growth strongest in 3 months

After slipping into contraction for the first time in 11 months in June, India’s manufacturing activity posted the strongest growth in three months in July with states easing pandemic induced localized restrictions.

Data released by data analytics firm IHS Markit showed purchasing managers’ index (PMI) for manufacturing sector rose to 55.3 in July from 48.1 in June. A level above 50 is considered expansion while below 50 is considered contraction in economic activity.

“Operating conditions in India improved during July, after growth was halted by the escalation of the pandemic in June. Output, new orders, exports, quantity of purchases and input stocks all returned to expansion territory, while a marginal increase in employment ended a 15-month sequence of job shedding," the data analytics firm said.

Strengthening international demand contributed to the uptick in total order books. New export orders expanded markedly in July, following a moderate contraction in June. Data separately released by commerce ministry also showed exports were at a record high in July at $35.2 billion.

Pollyanna De Lima, associate director at IHS Markit said 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. “Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for calendar year 2021," she added.

Madan Sabnavis, chief economist at Care Ratings said the sharp jump in PMI manufacturing does indicate Indian manufacturing has gotten over the negative effects of the lockdown. “Looking ahead we can expect it to remain over 50 but may not deviate much from the July level as the index is based on comparisons with the previous month. July being high, August would not show much of an uptick," he added.

However, more recent data suggest economic uncertainty may not be over yet. DART (Daily Activity and Recovery Tracker) Index by researcher QuantEco showed economic activity to have declined for the first time in 10 weeks, for the week ended 25 July after it surpassed the pre-pandemic level of 100 in the prior week. The recent spike in covid cases in Southern India led by Kerala has caused alarms amid fear of a third wave.

The International Monetary Fund last week slashed economic growth projection for FY22 to 9.5% from 12.5% estimated in April, citing slow recovery in consumer confidence due to the ferocious second wave of the coronavirus pandemic as well as a tardy vaccination programme.

De Lima said policymakers should welcome evidence that inflationary pressures are starting to abate. “Firms signalled 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 added.

RBI is scheduled to announce its latest bi-monthly monetary policy on Friday after the meeting of the monetary policy committee which will begin on Wednesday.

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