India's manufacturing activity expands at quickest pace in 8 months

Job creation is subdued though companies step up purchasing and report solid manufacturing activity

India’s manufacturing activity in July expanded at the quickest pace in eight months on the back of new business orders and output, said a survey by S&P Global on Thursday. 

S&P Global India Manufacturing Purchasing Managers' Index (PMI) jumped to 56.4 in July from 53.9 in June. A reading above 50 indicates expansion while a print below that denotes contraction.

The growth was a result of strong demand and pick-up in sales, the survey said. “Output expanded at the fastest pace since last November, a trend that was matched by the more forward-looking indicator new orders,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence. 

New orders rose in July, recovering from the growth momentum lost in June, the survey said. International markets contributed to the upturn in total order books, as new export orders rose at a moderate pace, it said.

Goods' producers registered a softer increase in their expenses during July, the survey said. Even as the cost for raw materials continued to rise, the rate of inflation slipped to an 11-month low, the survey said. Similar to input costs, the rate of increase in output prices in July was the slowest in four months, it said.

"Purchasing activity growth ticked higher in July and firms were successful in their efforts to obtain inputs amid a second consecutive improvement in supplier performance. This in turn supported a near-record increase in inventories of raw materials and semi-finished goods as well as a softer upturn in input costs,” said De Lima. 

Meanwhile, India's retail inflation in June had marginally eased to 7.01%, but stayed well above the Reserve Bank of India's tolerance limit for the sixth consecutive month.  To contain inflation, the RBI has already hiked its key interest rate by a cumulative 90 basis points since early May, and is expected to raise it again later this week.

The survey also pointed that companies stepped up input purchasing and reported solid manufacturing activity, however job creation remained subdued. The increase in employment was marginal and broadly similar to that seen in the five-month sequence of growth. About 98 per cent of firms kept workforce numbers unchanged amid a lack of pressure on operating capacity, the survey said.

Future uncertainty constrained hiring activity as overall business sentiment remained muted. About 96 per cent of manufacturers forecast no change in output from present levels over the course of the coming 12 months, the survey said.