Manufacturing sector activity ends 2020 on high note

India's manufacturing sector activity strengthened in December, with manufacturers stepping up production and input buying amid efforts to rebuild their inventories following business closures earlier in the year, a monthly survey said on Monday.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) was at 56.4 in December, a tick higher than November's reading of 56.3 and above the critical 50 threshold for the fifth straight month.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"The latest PMI results for the Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms' efforts to rebuild safety stocks underpinned another sharp rise in production," said Pollyanna De Lima, economics associate director at IHS Markit.

There was marked improvement in business conditions across the sector.

"It's important to emphasise the broad-based nature of the recovery, with marked expansions in both sales and output noted across each of the three monitored sub-sectors," Lima said.

International demand for Indian goods rose in December, but the growth was hampered by the COVID-19 pandemic.

As a result, new export orders increased at the slowest pace in the current four-month sequence of expansion.

Output growth also eased to a four-month low, but remained strong, it said.

Employment, on the other hand, decreased again in December, thereby stretching the current sequence of job shedding to nine months.

"Companies stated that government guidelines to have employees working only on shifts and difficulties in finding suitable staff were the key factors causing the latest fall in payroll numbers.

“However, the pace of contraction was moderate and the weakest in the current downturn period," the survey noted.

On the prices front, the survey noted that input cost inflation accelerated to a 26-month high in December, with panellists noting increased prices for chemicals, metals, plastics and textiles.

Output charges were lifted in response to rising cost burdens, but here the rate of inflation was only marginal.

Lima further noted that "...when we combine the latest three months we see that the performance of the manufacturing industry for the third quarter of fiscal year 2020/21 was notably better than in the second quarter."

The three-month PMI average rose from 51.6 to 57.2, the survey said.

Going ahead, Indian manufacturers maintained an upbeat view that output will increase in the coming year.

However, the degree of optimism weakened to a four-month low as some firms were concerned about the lasting effect of the COVID-19 pandemic on the global economy.

Photograph: Amit Dave/Reuters