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India’s manufacturing sector continued to strengthen in December with companies stepping up production and input buying amid efforts to rebuild their inventories following pandemic-driven business closures earlier in 2020, according to a private survey.

Data released by analytics firm IHS Markit on Monday showed Purchasing Managers’ Index (PMI) for manufacturing sector picked up marginally in December to 56.4 from 56.3 a month ago. A figure above 50 indicates expansion, while sub-50 signals contraction.

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However, the job scenario continues to be dismal with employment decreasing in December for the ninth consecutive month. “Companies stated that government guidelines to have employees working only on shifts and difficulties in finding suitable staff were the key factors causing the latest fall in payroll numbers. However, the pace of contraction was moderate and the weakest in the current downturn period," IHS said.

Input cost inflation accelerated to a 26-month high in December, with panelists noting increased prices for chemicals, metals, plastics and textiles. Output charges were lifted in response to rising cost burdens, but here the rate of inflation was only marginal.

Pollyanna De Lima, Economics Associate Director at IHS Markit said the latest PMI results for the Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms' efforts to rebuild safety stocks underpinned another sharp rise in production. “When we combine the latest three months we see that the performance of the manufacturing industry for the third quarter of fiscal year 2020/21 was notably better than in the second quarter. The three-month PMI average rose from 51.6 to 57.2," she added.

Goods and Services Tax (GST) revenue receipt of central and state governments rose to a record 1.15 trillion in December as economic activity extended its momentum and a sustained drive against tax evasion yielded results. This is the third month in a row when GST revenue crossed 1 trillion mark signaling sustained improvement in consumption.

The pace of contraction in the Indian economy slowed in September quarter to 7.5% from a historic high of 23.9% contraction in June quarter due to the shock caused by the covid-19 induced nationwide lockdown. Since then many economic agencies have revised upward their growth forecasts for India hoping for quicker than anticipated economic recovery.

The Reserve Bank of India (RBI) has projected the Indian economy to contract 7.5% in FY21, shallower than 9.5% contraction it projected just two months ago, on the back of a host of lead indicators, suggesting sustained economic recovery. It expects the economy to post 0.1% growth in December quarter and 0.7% in March quarter to end FY21 with 7.5% contraction. The finance ministry also expects marginal positive growth in the economy beginning December quarter.

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