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Recently released macro economic data on India points to a strong recovery across various sectors and the economy is expected to expand in the coming months.
IHS Markit released India’s manufacturing and services PMI data for the month of September. The data showed both manufacturing and services sectors expanding. The Indian government released its eight core industrial sector output data for August, which hinted at a rebound in infrastructure-related activities.
Manufacturing Sector
The manufacturing sector witnessed strong business activity, helped by improving demand conditions as lockdown restrictions eased and factories were opened, a survey report by IHS Markit said.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index rose to 53.7 in September, from 52.3 in August. This indicated a robust expansion in overall business condition.
The overall confidence among businesses was upbeat and there was faster recovery in international sales.
In the international market, there was a strong demand for Indian goods in September, even though some companies mentioned that overseas sales were capped due to restrictions related to the pandemic.
As sales rose at a significant rate, companies increased their production and procured additional inputs. Pollyanna De Lima, Economics Associate Director at IHS Markit, said that companies continued to purchase extra inputs in September, but jobs were little changed over the month. She added that participants in the survey indicated that government guidelines surrounding shift work prevented hiring.
However, shortage of raw materials, higher transportation cost and soaring oil prices led to faster input cost inflation.
Consumer goods was the brightest spot in September amid significant rate of growth in new orders and output. Some analysts also linked growth to new clients addition and successful marketing.
Meanwhile, pre-production inventories increased at a substantial rate as firms wanted to ensure that current and future demand needs are met. Inventories of manufactured goods continued to fall as manufactured items were dispatched immediately to clients.
Services Sector
India’s services sector also expanded in September, similar to manufacturing sector, as lockdown restrictions eased and footfalls increased boosting sales, according to IHS Markit report. In addition to higher footfalls, marketing efforts helped new business inflows.
The seasonally adjusted India Services Business Activity Index posted 55.2 in September, signalling an increase in output. However, the index was a tad lower than 56.7 registered in August.
Additional staffs were hired to cope with rising demand and increasing workloads. This rise in employment ended a nine month sequence of job shedding. Selling prices rose marginally.
As fuel, material, retail and transportation prices rose, Indian service providers faced higher average cost burdens in September, which led to higher overall rate of inflation.
A few companies suggested that additional cost burdens were passed onto their clients via increasing the selling prices. However, others refrained from increasing their fees to secure new work.
Meanwhile, travel restrictions continued to weigh on demand from international markets for Indian services. New export business contracted for the nineteenth month in a row and also at a sharper rate.
Despite the sustained recovery of the sector, business confidence weakened in September. Anecdotal evidence hinted that optimism was curbed by worries regarding inflationary pressures.
Moreover, business activity in India’s private sector rose further in September, as both manufacturing and services output continued to expand. The Composite PMI Output Index waslittle changed in September at 55.3, compared with 55.4 in August and thereby signalling that the economy was expanding.
Core Industrial Sector
Output of India’s core industrial sector, which comprises of eight industries, rose 11.6% year-on-year in August, according to recently released data by the Ministry of Commerce & Industry. This is significant as the sector contracted by 6.9% in the year-ago period. The country’s eight core industries include coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity.
Refinery Products, Steel, Electricity and Coal industries have higher weightage and make up more than three-fourth of the core industrial sector.
Among the eight industries, coal and natural gas output for August rose by 20.6% each, compared to corresponding period last year. The petroleum refinery production rose 9.1% and electricity generation jumped 15.3%.
Production of cement, which has a less weightage compared to other industries, rose at 36.3%.