India’s services, manufacturing sectors expand in August

India’s manufacturing and services sector expanded in August, though the pace of manufacturing growth slowed down.

IHS Markit recently released services PMI and manufacturing PMI data. India’s services business activity stood at 56.7 in August compared with 45.4 in July. The reason for this rate of expansion was attributed to continued decrease in coronovirus cases and improved vaccination.

Further, companies opened their establishments and resumed their services resulting in increased consumer footfall and higher sale. This indicated a rebound in business confidence.

The survey’s data also showed that firms had the capacity to meet rising new orders and it was a factor that prevented job creation. However, firms saw a decline in export orders, while demand conditions in the domestic market remained favourable for growth. The decline in overseas market was due to the pandemic and travel restrictions.

Businesses predict rise in output in the next 12 months, with the overall level of positive sentiment climbing to a five-month high. Service providers signalled that rise in fuel prices, higher retail and transport prices pushed up their expenses in August.

Manufacturing Sector

Meanwhile, the pace of manufacturing expansion in India slowed down in August as there were concerns over the coronavirus cases increasing and rising input costs.

IHS Markit’s India Manufacturing Purchasing Managers’ Index stood at 52.3 in August, as against 55.3 in July, indicating a softer rate of growth. However, the order books were expanding and businesses remained optimistic about growth projections, while stock-building efforts continued and additional materials were bought.

Indian manufacturers were burdened by rising cost burdens in August, which indicated inflation persisted for the thirteenth month. The rate of increase in prices softened, but remained at elevated levels. The rise in cost pressures were linked to raw material scarcity and transportation problems, according to survey members. Manufactures passed some of the additional cost burden to clients by lifting their fees.

Companies worked through their pending orders in August and backlogs decreased at a similar pace seen in the previous three months. The fast dispatch of purchased goods resulted in a decrease in holdings of finished products. However, pre-production of inventories continued to rise as firms purchased additional raw materials to meet greater output needs.

Composite PMI

Meanwhile, private sector activity across India rose in August, after a downturn for three consecutive months. The Composite PMI Output Index increased to 55.4 in August, from 49.2 in July, indicating a robust rate of expansion. Services firms performed better than manufacturing companies for the first time in over three years. Job creation at the composite level declined further in August, but the pace of contraction was slowest in 17 months.

Inflation was more noticeable in the service sector than in the manufacturing industry. However, goods manufacturers increased their charges at a faster rate than services firms. At the composite level, output prices rose at a slight pace that was the slowest since March.

To read about India’s GDP growth in Apr-Jun quarter, click here