As per the IHS’s recently released monthly Survey, India’s manufacturing sector witnessed the strongest growth in the manufacturing sector in July in the last three months.
Asserting the strongest growth rate, the seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) rose from 48.1 in June to 55.3 in July. It is imperative to note that in PMI parlance, a score above 50 signifies expansion while a score below 50 denotes contraction.
Enhanced demand conditions and easing of some local COVID-19 restrictions with a decline in new cases are said to be the reason for improved performance.
Pollyanna De Lima, Economics Associate Director at IHS Markit said, “It’s encouraging to see the Indian manufacturing industry recover from the blip seen in June.”
“Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions,” she added.
Hopeful about the improving conditions, Lima noted, “Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for the calendar year 2021.”
The IHS survey also observed that Indian firms foresee output growth in the year ahead. The end of the pandemic will also result in increased sales to support the upturn, as per reprts.
“The overall level of positive sentiment rose from June’s 11-month low, but remained historically subdued as some companies were concerned about the path of the pandemic,” the survey noted.
Rebound in factory activities
As the impact of the second wave of the pandemic receded, businesses ramped up manufacturing activities. Exports too witnessed a healthy rise as orders grew at the fastest rate since April.
While the threat of a third wave continues to loom, the re-opening of the economy has led to higher demand and sales.
Madan Sabnavis, chief economist at Care Ratings remarked, “Looking ahead we can expect it to remain over 50 but may not deviate much from the July level as the index is based on comparisons with the previous month. July being high, August would not show much of an uptick.”
He believes the manufacturing sector in India has gotten over the negative effects of the lockdown.
Marginal increase in employment
A marginal increase in recruitment in July ended the 15-month sequence of job shedding. “Although marginal, the rise in employment was the first since the onset of COVID-19. With firms’ cost burdens continuing to rise, however, and signs of spare capacity still evident, it’s too early to say that such a trend will be sustained in coming months,” Lima said commenting on the employment situation.
“Operating conditions in India improved during July, after growth was halted by the escalation of the pandemic in June. Output, new orders, exports, the quantity of purchases, and input stocks all returned to expansion territory, while a marginal increase in employment ended a 15-month sequence of job shedding,” the data analytics firm noted.
RBI to keep interest rates unchanged
On the inflation front, Lima said, “Policymakers will welcome evidence that inflationary pressures are starting to abate. Firms signaled the slowest increases in input costs and output charges for seven months.”
“Hence, we expect the RBI to keep interest rates unchanged in its August meeting as it continues to support growth,” she added.
Experts suggest that amid constant fears of a third wave of the coronavirus pandemic and hardening of retail inflation, the Reserve Bank is likely to maintain the status quo on interest rates.
In a pattern being followed from the time India was hit by the pandemic, reports suggest the RBI will continue to watch the developing macroeconomic situation for some more time before taking any decisive action on monetary policy.
IMF slashed growth projection
Discounting the signs of recovery, the International Monetary Fund last week slashed economic growth projection for FY22 to 9.5% from 12.5% estimated in April. It cited a slow recovery in consumer confidence after the second wave as the reason.
However, India’s chief economic advisor Krishnamurthy Subramanian hit back at the International Monetary Fund for downgrading the country’s growth projection, saying it’s “significantly off the mark.”
Speaking to CNBC Subramanian claimed that the IMF’s assessment was driven by “saliency bias”. He alleged that more focus was given to striking information while data that is comparatively less remarkable was ignored. He said India dismissed the downgrade assessment.