Factory output sees uptick as curbs are eased

As states began easing pandemic-induced localized restrictions, manufacturing activity in India grew the strongest in three months in July, emerging from the previous month’s contraction that was the first in nearly a year.

Data issued by analytics firm IHS Markit showed purchasing managers’ index (PMI) for the manufacturing sector rose to 55.3 in July from 48.1 in June. A level above 50 is considered expansion in economic activity while below 50 is considered contraction.

“Operating conditions in India improved during July, after growth was halted by the escalation of the pandemic in June. Output, new orders, exports, quantity of purchases and input stocks all returned to expansion territory, while a marginal increase in employment ended a 15-month sequence of job shedding,” the firm said.

Strengthening international demand contributed to the uptick in total order book. New export orders expanded markedly in July, rebounding from a moderate contraction in June. Data issued separately by the commerce ministry showed exports at a record high of $35.2 billion in July.

Pollyanna De Lima, associate director at IHS Markit, said output rose at a robust pace, with over one-third of companies noting a monthly increase in production, amid a rebound in new business and the easing of some local Covid-19 restrictions.

“Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for calendar year 2021,” she added.

Madan Sabnavis, chief economist at Care Ratings, said the sharp jump in PMI manufacturing does indicate Indian manufacturing has survived the negative effects of the lockdown.

“Looking ahead, we can expect it to remain over 50 but may not deviate much from the July level as the index is based on comparisons with the previous month. July being high, August would not show much of an uptick,” he added.

However, recent data suggest economic uncertainty may not be over yet. DART (Daily Activity and Recovery Tracker) Index by researcher QuantEco showed economic activity to have declined for the first time in 10 weeks, for the week ended July 25, after surpassing the pre-pandemic level of 100 in the prior week. The recent spike in Covid cases in southern India, led by Kerala, has caused concerns amid fears of a third wave.

De Lima said policymakers should welcome evidence that inflationary pressures are starting to abate. “Firms signalled the slowest increases in input costs and output charges for seven months. Hence, we expect RBI to keep interest rates unchanged in its meeting as it continues to support growth,” she added.

The Reserve Bank of India is scheduled to announce its latest bi-monthly monetary policy on Friday after the meeting of the monetary policy committee, which will begin on Wednesday.

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