Boosted by higher production and better sales, the manufacturing sector recovered in February as the Purchasing Managers’ Index (PMI) surged to 56.9. The month saw production rise at the fastest pace in five months, fuelling the quickest increase in sales since last September, and the strongest expansion in new export orders for 21 months.

However, the job scenario was lackluster. “Despite the uptick in growth momentum, manufacturing employment in India was little-changed halfway through the final fiscal quarter. Goods producers mentioned that payroll numbers were sufficient for current requirements,” the report detailing PMI said. This index is prepared on the basis of responses from purchasing managers of 400 companies. An index above 50 means expansion, while an index below 50 reflects contraction.

Meanwhile, the report noted the lowest rise in input costs in over three-and-a-half years, as the rate of inflation subsided to the weakest in the current sequence of inflation that stretches back to August 2020. Qualitative evidence highlighted higher prices for iron, paper, and plastics, parallel to reductions for cotton and steel. “Prices charged by Indian manufacturers increased at a slower rate, the joint-weakest since March 2023. Among the 8 per cent of panellists that hiked their fees, there were mentions of the passing on of greater freight, material, and wage costs to clients,” the report said.

The latest PMI has been released a day after government’s Statistics office made growth date for the October-December quarter of FY24 public. It showed GDP grew by 8.4 per cent and the main hero for this rise was manufacturing, which recorded a double-digit growth (11.6 per cent) in the said quarter. Manufacturing has a share of over 15 per cent in gross value added and is considered as the biggest job multiplier.

Now in February, as the report highlighted, production levels were raised in tandem with a further steep increase in inflows of new orders, advanced technology, and buoyant demand conditions. The upturn in manufacturing output was the strongest seen for five months and was led by the capital goods category. Similarly, factory orders expanded at the quickest pace since September and one that was above the long-run series average. Firms indicated that marketing efforts continued to bear fruit, helped by a positive demand environment.

Notably, new export orders rose at the fastest rate in nearly two years, with anecdotal evidence highlighting Australia, Bangladesh, Brazil, Canada, mainland China, Europe, Indonesia, the US, and UAE as sources of demand growth, the report said.

Analysing the overall trend, Ines Lam, Economist at HSBC, said that production growth continued to be strong, supported by both domestic and external demand. Manufacturing firms’ margins improved as input price inflation slipped to the lowest since July 2020. “Buoyed by robust demand and improving profit margins, manufacturers have an optimistic outlook about future business conditions,” she said.

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