India manufacturing output expands for 7th straight month

The recovery of India’s manufacturing economy continued on a relatively steady footing during October. Output and new orders rose at substantial rates, albeit less sharply than in September. Meanwhile, buying activity grew at an accelerated pace and employment expanded for the first time in four months.

At 54.5 in October, the seasonally adjusted HSBC Markit Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the manufacturing sector – was only fractionally lower than in September (55.0). The latest reading pointed to another strong improvement in the health of the industry.

Indian manufacturing output expanded for the seventh consecutive month in October, and at a rapid pace. Improved production efficiency and greater new order volumes supported the latest increase, according to panelist accounts.

New work placed with Indian manufacturers grew markedly at the start of the fourth quarter, which firms commonly linked to a better economic situation. Other reasons for the rise included successful advertising campaigns, good reputations and company expansions. New business stemmed from both domestic and export markets, with foreign sales improving at the fastest rate since August last year. Even so, the home market remained the principal driver of growth.

Manufacturers took advantage of demand conditions in October, raising their charges for the second straight month. However, output price inflation slowed to only a marginal pace, reflective of ongoing competitive pressures. Meanwhile, input price inflation remained marked, despite easing from September’s three-year high. Respondents blamed greater purchasing costs on more expensive raw materials.

Employment at Indian manufacturers expanded during October. Survey participants stated that personnel were taken on to accommodate higher production requirements. However, the rate of job creation was only marginal and below the long-run series trend.

Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, senior Asian economist at HSBC, said: “The PMI, which led the upturn in the industrial cycle, has gone essentially nowhere over the last six months. It is, however, consistent with robust growth in industrial production of around 8-10% on an annual basis. If falls in the output and total new orders indices were a touch disappointing, a rise in the employment index back above 50.0 and a decent improvement in the new export orders index to its highest level since August last year offered welcome news. It may be that domestic new order growth is beginning to suffer from the impact of the drought, but at least stronger foreign demand is helping to cushion the blow. Also helpful, from a policy perspective at least, were falls in both input and output prices indices. Although early days, the latter looks to have a decent relationship with wholesale price inflation and might help calm what are clearly extremely frayed nerves at the Reserve Bank of India.”