Backed by new orders, the manufacturing sector continued to expand at almost the same pace in July as in June, a survey-based index prepared by S&P Global released on Tuesday showed. The Purchasing Managers’ Index (PMI) dropped a tad to 57.7 in July, as against 57.8 of June.

However, the most important development was a solid rise in employment. The manufacturing sector is considered the biggest job multiplier in the economy, with an over 18 per cent share in Gross Value Added (GVA).

“The Indian manufacturing sector showed little sign of losing growth momentum in July, as production lines continued to motor on the back of strong new order growth,” Andrew Harker, Economics Director at S&P Global Market Intelligence, said. Further, pressure continued to be exerted on capacity, prompting a solid expansion in employment, a trend that is likely to continue in the months ahead should demand remain strong.

According to S&P Global, the Indian manufacturing sector maintained strong growth momentum at the start of the third quarter amid ongoing buoyant demand. The rates of expansion in output and new orders were only marginally softer than in June, with firms expanding their employment and purchasing activity accordingly. Cost inflationary pressures remained relatively muted. “The index signalled a further substantial improvement in the health of the sector. Business conditions have now strengthened in each of the past 25 months,” the agency said.

It also said firms responded to greater workloads by taking on extra staff. The solid pace of job creation was broadly in line with that seen in May and June. This expansion in capacity was not sufficient to prevent a further build-up in backlogs of work, however, given the strength of the rise in new orders. “Outstanding business increased for the nineteenth successive month, albeit only slightly,” it added.

Firms generally expect demand to remain elevated over the coming year, supporting projections for production growth. There were some reports that customers had responded well to recent new order deliveries and were expected to commit to more over the coming months. Confidence was slightly lower than that seen in June, but remained above the series average. Around 32 per cent of respondents predicted a rise in output, with just 2 per cent pessimistic, the agency highlighted.

”All in all, the Indian manufacturing sector has maintained its position as one of the star performers globally, bucking the trend of demand weakness seen in other parts of the world,” Harker concluded.

PMI is based on a survey conducted among purchasing managers of 400 manufacturing companies. These companies are stratified by detailed sector and company workforce size, based on contributions to GDP. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease. The indices are then seasonally adjusted.