The Indian manufacturing sector began 2010 on a firm footing, with both new orders and output expanding considerably and at accelerated rates. This was in stark contrast to the situation around the turn of 2009, when production and new business contracted at rapid rates. Although the recovery in employment has yet to really gain traction, the marginal pace of job creation in January was nevertheless the fastest since September 2008. Meanwhile, input and output prices rose at sharp and accelerated rates.
Climbing to 57.6 in January, its highest level for 17 months, the seasonally adjusted HSBC Markit Purchasing Managers’ Index (PMI) – a headline index designed to measure the overall health of the manufacturing sector – signaled a considerable improvement in operating conditions faced by Indian manufacturers. The headline index has now signaled expansion of the sector since April 2009, and at increasing rates for the past two survey periods.
Indian manufacturers sharply raised their output levels during the latest survey period, in line with the upward trend in new work. Production and new orders have both increased for 10 straight months, with the latest gains above their pre-downturn averages. Data showed that domestic and foreign demand rose considerably since December. The improvement in external demand was noticeable, although total new business growth continued to increase at a rate above export orders.
Reflecting greater workloads, respondents noted a build-up of unfinished business during January. However, the rate of accumulation was only weak, as many firms increased efforts to catch up on backlogs.
Data pointed to slight growth of Indian manufacturing industry employment in January, which panelists linked to higher production requirements and capacity constraints. Although only weak, the increase was the strongest for almost a year-and-a-half.
In order to accommodate rising production requirements, and to re-build depleted stocks, Indian manufacturers purchased more inputs in the first month of the new year. Buying activity grew at a substantial pace that was the fastest since May 2008. Additional demand for raw materials placed pressure on suppliers’ capacities. Consequently, lead times lengthened for the second month running, albeit only slightly.
Commenting on the India Manufacturing PMI survey, Robert Prior-Wandesforde, senior Asian economist at HSBC, said: “Any lingering concern that India's manufacturing recovery was tailing off should be well and truly put to rest by this strong release. A second consecutive rise in the PMI has taken the series to a new cycle high, consistent with ongoing double digit rises in industrial production. The most impressive part of the release was the more than 5 point jump in the new export orders index, which took it to its highest level since October 2007 and indicated that the recovery is by no means dependent on domestic demand alone. At the same time, however, price pressures are clearly intensifying. The rate of increase in input prices was the largest since the PMI began nearly five years ago, while the survey suggests that companies are more willing to pass on these rises in the form of higher output prices – something which the RBI is unlikely to take too kindly to. Admittedly, the employment index only inched above 50 but it can't be long before job hiring picks up more aggressively.”