Home / Economy / Manufacturing activity cools in Sept

BENGALURU: India’s manufacturing activity moderated to a three-month low in September amid mild increase in new orders as companies stepped up production despite global headwinds, according to a private survey. Besides, inflationary pressures eased during the month with input cost inflation moderating to a 23-month low, improving outlook and business confidence.

The S&P Global India Manufacturing Purchasing Managers Index (PMI) edged lower for the third straight month to 55.1 points in September from 56.2 points in August, even as the rate of expansion remained ‘historically high’, reporting the fifteenth straight month of growth. In fact, firms hired extra workers and acquired more inputs to accommodate higher sales and greater output needs.

A reading over 50 denotes expansion, and below it denotes contraction.

"There were softer, but substantial, increases in new orders and production in September, with some leading indicators suggesting that output looks set to expand further at least in the short-term as firms seek to fulfil sales contracts and replenish stocks," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence. She added that the latest set of PMI data suggests that the Indian manufacturing industry remains in good shape, despite considerable global headwinds and recession fears elsewhere.

There was a spike in input purchases, which was supported by cooling price pressures as input inflation rose at the slowest pace in just under two years and output charge inflation receded to a seven-month low. While around 8% of companies reported higher purchasing prices, 91% signalled no change, the survey-based report showed.

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“Businesses also benefited from a notable moderation in price pressures. Input costs rose at the slowest rate in almost two years as suppliers' stocks improved in line with subdued global demand for raw materials and recession risks. Subsequently, Indian companies sought to restrict selling price hikes and overall charge inflation eased to a seven-month," said De Lima.

India’s retail inflation rate has hovering at a record 7%, far above the Reserve Bank of India’s tolerance range of 4-6% for eight consecutive months, largely led by higher food prices and pressure from rising global oil and commodity prices. The central bank retained inflation projection at 6.7% for the current financial year in its latest policy meet, estimating it at 6.5% for the third quarter, and 5.8% in January-March 2023.

New orders, international sales and output increased were reported in the manufacturing industry. The strongest growth rates were reported by capital goods makers. Business sentiment improved for the third month in a row in September, reaching its highest level in over seven-and a-half years, according to the report. However, currency risks and the impact of a weaker rupee on inflation and interest rates could derail optimism during October, said De Lima.

The rate setting panel of the Reserve Bank of India hiked repo rate by 50 basis points for the fourth time in a row on 30 September, taking the policy rate to a three-year high of 5.9%.

The survey comes days after the index of eight core industries output growth decelerated sharply to a nine-month low in August dampening economic outlook.


Dilasha Seth

" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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