India’s manufacturing sector expands in July, services contracts

India’s manufacturing and service sector make up about 84% of the country’s GDP and the performance of these two sectors are very important for the development of the country.

IHS Markit, a financial information provider and analytics company, recently, released a survey on the performance of these two sectors of India.

Manufacturing Sector

India’s manufacturing activity improved in July, compared with the previous three months, and there was a slight uptick in employment as Indian states slowly started to ease the lockdown restrictions.

The IHS Markit’s Manufacturing Purchasing Managers’ Index (PMI) increased to 55.3 in July, from 48.1 in June. Operating conditions in India improved during July with production, new orders, exports, quantity of purchases and input stocks all rebounded to expansionary levels. An index number above 50 means activity in the sector is expanding, while the index number below 50 indicates the activity in the sector is contracting.

Improving global demand contributed to an uptick in total order books. New export orders expanded in July, after a contraction in June. In addition, rising sales growth and production requirements led to an increase in hiring in July.

However, as demand for inputs outstripped supply, there was another substantial increase in purchasing prices. The rate of cost inflation remained above its average, but eased to a seven-month low.

Pollyanna De Lima, Economics Associate Director at IHS Markit, said, “Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for calendar year 2021.”

Services Sector

IHS Markit also released the survey numbers of the service sector, which contributes about 54% to Indian’s economy. The numbers showed India Services Business Activity Index was in contraction territory for the third month in a row at 45.4 in July. But this was better than 41.2 in June. In the services sector, business activity, new orders and employment declined.

Global demand for services declined and that added pressure to job creation in the sector. Customer services segment was the most affected segment, while Transport and Storage was the only segment which posted growth in sales and business activity.

There were also negative sentiments among companies regarding the pandemic, inflation and profit margins. The overall outlook was that business activity will deteriorate in the next 12 months that will weigh in jobs.

Input costs rose in July as fuel, medical equipments and raw materials costed higher. Meanwhile, input costs in the Real Estate & Business Services segment grew at a faster pace.

The numbers were disappointing with respect to business activity in the Indian private sector as data showed the Composite PMI Output index rose to 49.2 in July, from 43.1 in June.