Some bright patches are beginning to show up in the economy after all. The Nikkei India Manufacturing Purchasing Managers’ Index (PMI), compiled by IHS Markit, rose from 52.7 in December to 55.3 in January, the highest in nearly eight years. While the pace of improvement is a surprise, companies attribute the rise to the underlying pent-up demand. A PMI above 50 indicates expansion.
The consumer goods sub-sector again shines bright, while intermediate goods maintained its growth pace. Capital goods are back in an expansion mode, suggesting a potential renewal in investments in the economy.
The PMI indicators also support the upturn in new business from external markets. Fresh export orders have risen the fastest since November 2018, with manufacturers notching higher sales to Asia, Europe and North America.
Further, input costs are softening, and this could help improve margins. PMI data shows support came in the softer rises in input costs and output charges. While some companies reported higher prices for metals, textiles and food, others noted lower charges for copper, packaging materials and rubber.
Following the pickup in demand, Indian goods producers increased production in January. The PMI data shows that the rise was the strongest in over seven-and-a-half years, with the rate of expansion much higher than its long-term average. Firms have started to use inventory to cover obligations, resulting in a decline in finished goods inventory.
Commenting on the latest survey results, Pollyanna de Lima, principal economist at IHS Markit, said: “The PMI results show that a notable rebound in demand boosted growth in sales, input buying, production and employment as firms focused on rebuilding inventories and expanding capacities, anticipating further increases in new business.”
So far, hiring is also gaining momentum, which further bolsters economic expansion. Firms increased employment at the quickest rate in nearly seven-and-a-half years, the chief reasons cited being new business growth and projects in the pipeline.
So, what next for the domestic economy? The Index of Industrial Production for November also showed expansion of 1.8% year-on-year. While all this spells good news, the virtual shutdown in China following the coronavirus outbreak will weigh on sentiment.
