February data pointed to the strongest increase in input inventories in the survey history as firms reacted to rising production needs by lifting purchasing activity
India’s manufacturing activity eased a little in February compared to January but remained robust as firms lifted input inventories at record pace with strong growth in sales and production, a private survey said.
Data released by the analytics firm IHS Markit on Monday showed Purchasing Managers’ Index (PMI) for manufacturing sector fell marginally 57.5 from 57.7 a month ago. A figure above 50 indicates expansion, while sub-50 signals contraction. The headline figure however remained above its long-run average of 53.6.
“Better demand conditions and successful marketing campaigns reportedly underpinned a further increase in new orders during February. Although easing from January, the pace of growth remained sharp in the context of historical data," IHS Markit said in a statement.
In comparison, China’s PMI slipped to 50.9 in February, from 51.5 in January as companies recorded slower rises in both output and new work but stayed in positive territory for 10 straight months.
According to the latest Industrial Outlook Survey of the manufacturing sector by the Reserve Bank of India released last month, manufacturers expect expansion in production volumes, new orders and job landscape to continue in the March quarter. However, they also expect higher pressures from cost of finance, purchase of raw materials and salary outgo.
Pollyanna De Lima, Economics Associate Director at IHS Markit said Indian goods producers reported a healthy inflow of new orders in February, a situation that underpinned a further upturn in output and quantity of purchases. “Still, the data indicated that production growth could have been stronger should firms have appropriate resources to handle their workloads. This was evident from a quicker rise in outstanding business and another decline in inventories of finished goods," she added.
February data pointed to the strongest increase in input inventories in the survey history as firms reacted to rising production needs by lifting purchasing activity. The expansion in input buying was the fastest in almost a decade. “In turn, robust demand for inputs led suppliers to hike their fees. Survey members noted greater prices for a number of items such as chemicals, metals, plastics and textiles. The overall rate of cost inflation hit a 32-month high," the analytics firm said.
Despite robust production and sales growth, payroll numbers fell further amid the observance of government guidelines aimed at halting the spread of COVID-19 by implementing shift work. The decline was the eleventh in successive months.
De Lima said some companies indicated that capacity expansion through hiring was not currently possible due to existing restrictions on labour working hours. “"However, many hope that such controls will shortly be removed as the vaccination programme widens. Once larger parts of the population are immunised against COVID-19 and restrictions start to be lifted, companies expect a gradual improvement in economic conditions which they hope will translate into output growth. The overall degree of business optimism was the joint-highest for three months," she added.
Indian economy recovered in the December quarter to expand at 0.4% after two successive quarters of historic contraction induced by the coronavirus pandemic, signaling that Asia’s third largest economy may be on a path of slow but sustained recovery. For FY21, however, government’s statistics office now estimates deeper contraction of 8% than earlier estimate of 7.7% contraction.
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