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India's purchasing managers' index (PMI) for manufacturing rose to 56.8 in September from 52 in August (Ramesh Pathania/Mint)
India's purchasing managers' index (PMI) for manufacturing rose to 56.8 in September from 52 in August (Ramesh Pathania/Mint)

PMI manufacturing expands to highest level in eight-and-half years in September

  • It was supported by accelerated increases in new orders and production, signalling faster turnaround in industrial activity

India’s manufacturing output expanded to its highest level in over eight and half years in September supported by quicker increases in new export orders and domestic sales, signaling faster turnaround in industrial activity following gradual easing of lockdown curbs, starting June, according to a private survey.

According to data analytics firm IHS Markit, India's purchasing managers' index (PMI) for manufacturing rose to 56.8 in September from 52 in August, the highest mark since January 2012. A figure above 50 indicates expansion, while a sub-50 print signals contraction.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said due to loosened covid-19 restrictions, factories went full steam ahead for production in September, supported by a surge in new work. "Exports also bounced back, following six successive months of contraction, while inputs were purchased at a sharper rate and business confidence strengthened," she added.

However, Care Ratings chief economist Madan Sabnavis said the high number should be interpreted with caution and cannot be compared with similar levels in the past when the economy was booming. “The improvement in PMI manufacturing was expected as it shows improvement month on month which corresponds with the unlock process. There is definitely progress but it cannot be equated with say IIP (Index of Industrial Production) growth which will most likely be negative in September albeit at a single digit level," he added.

Lima said one area where manufacturing sector still lags behind is employment. “Some companies reported difficulties in hiring workers, while others suggested that staff numbers had been kept to a minimum amid efforts to observe social distancing guidelines. When we look at the PMI average for the second quarter of fiscal year 2020/21, the result is in stark contrast to that seen in the first quarter: a rise from 35.1 to 51.6. While uncertainty about the covid-19 pandemic remains, producers can at least for now enjoy the recovery," she said.

India’s economy contracted at a record 23.9% in the June quarter of FY21, underlining the extent of economic damage inflicted by the pandemic. Most economists now expect Asia’s third largest economy to contract in double digits in FY21.

The upturn in total sales was also supported by a renewed expansion in new export orders, the first since prior to the escalation of the COVID-19 outbreak. Mint reported on 25 September that India’s outbound shipments are showing signs of a turnaround in September for the first time in seven months with merchandise exports expanding by 8.3% in the first three weeks of this month. However, an imminent second wave of covid-19 in many European economies, including the UK, may threaten a nascent recovery in external demand for Asia’s third-largest economy.

IHS Markit said manufacturers stepped up purchasing activity in September in line with greater production needs. “Furthermore, the increase in input buying was the strongest in over eight-and-a-half years. On the price front, there was a softer and historically weak rise in input costs. Firms reported higher prices paid for a few materials such as aluminium and steel. Output charges, meanwhile, broadly stabilised following five successive months of reduction," it added.

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