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Recovery in the manufacturing sector in India appears to have hit a roadblock again as the Purchasing Managers’ Index (PMI) dropped to 52.3 in August, from 55.3 in July. Another piece of bad news is that new job creation has been stagnant.
IHS Markit, which prepares this survey-based index and releases it with a detailed report, said: “Growth of manufacturing production in India was curbed in August by the pandemic and rising input costs. A softer upturn in sales led companies to pause their hiring efforts, with business confidence dampened by concerns surrounding the damaging impact of Covid-19 on demand and firms’ finances.”
Pandemic has India scrambling to boost its manufacturing sector
Manufacturing has a share of over 14 per cent in Gross Value Added (GVA). PMI data is released monthly in advance of comparable official economic data. It is compiled from responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers. A diffusion index is calculated for each survey variable. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The headline PMI is a weighted average of the following five indices: New Orders (30 per cent), Output (25 per cent), Employment (20 per cent), Suppliers’ Delivery Times (15 per cent) and Stocks of Purchases (10 per cent).
Covid blues: Services sector still a picture of worry with PMI at 45.4 in July
Index above 50 shows expansion while below that means contraction. Only last month, it came back to expansion. Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said that August saw a continuation of the Indian manufacturing sector recovery, but growth lost momentum as demand showed some signs of weakness due to the pandemic. Yet, factory orders and output rose across the consumer, intermediate and investment goods categories.
Hiring freeze
On the job situation, the report said that employment levels were broadly stagnant in August as companies reportedly had sufficient workforce to cope with current requirements and confidence remained subdued. “Uncertainty regarding growth prospects, spare capacity and efforts to keep a lid on expenses led to a hiring freeze in August, following the first upturn in employment for 16 months in July,” De Lima said.
Another concern was higher cost. Charges levied by manufacturers rose as some firms shared part of their additional cost burdens with clients, although to a lesser degree than selling prices. Input prices increased sharply, due to strong competition for scarce raw materials and transportation issues, according to the report.
The report shared optimism as expressed by the Government but with some words of caution. “The 12-month outlook for production remained positive, though confidence faded amid worries concerning the lasting scars of the pandemic and the adverse impact of rising costs on companies’ finances parallel to a lack of pricing power,” De Lima said.
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