India’s manufacturing activity touches 8-month high in July

The improvement signals a slow but steady recovery after the global pandemic coupled with geopolitical complications triggered by Russia-Ukraine war saw a dip in growth rates across the country

India’s manufacturing sector activity has gained momentum in July, hitting an eight-month high driven by a significant uptick in business orders. The improvement signals a slow but steady recovery after the global pandemic coupled with geopolitical complications triggered by Russia-Ukraine war saw a dip in growth rates across the country.

India's manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global rose to 56.4 in July as compared to 53.9 in June, therefore, remaining well above the 50-level separating growth from contraction for a third straight month. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction. The readings are based on a monthly survey of businesses that are mainly into manufacturing activities.

Demand showed signs of resilience in May, improving further in spite of another uptick in selling prices. Companies reported a marked increase in total new orders that was broadly similar to April. May data also highlighted a notable uptick in growth of new export orders. The rate of expansion was sharp and the fastest since April 2011. Total sales were boosted by a substantial upturn in international orders, the strongest in over 11 years.

There was also good news on the price front, as rates of both input cost and output charge inflation subsided, as per the survey. Indian manufacturing production rose at a sharp pace that was the fastest in eight months. The upturn was broad-based by sub-sector, and led by investment goods.

Despite the solid performance of the manufacturing industry, overall job creation remained subdued. A vast majority of firms (98 percent) opted to leave workforce numbers unchanged amid a lack of pressure on operating capacity.

The divergence in India’s headline PMI relative to the rest of the region reflects the resiliency of India’s domestic demand recovery. Even as the world continues to battle inflation, we saw a decline in inflation rates from 7.79 per cent in April to 7.04 per cent in May to 7.01 percent in June. This downward trend can sustain, given the recent sharp decline in commodity prices. Industrial production index also showed a sharp recovery after a slump first quarter. We are safe to say that India’s domestic economic factors are positive that can insulate India from any major negative impact of a global adverse economic event.