India's manufacturing sector activities improved in September as companies benefited from strengthening demand conditions amid the easing of COVID-19 restrictions, a monthly survey said on Friday. The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI) improved from 52.3 in August to 53.7 in September, indicating a stronger expansion in overall business conditions across the sector.
The September PMI data pointed to an improvement in overall operating conditions for the third straight month. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction. "Indian manufacturers lifted production to a greater extent in September as they geared up for improvements in demand and the replenishment of stocks," Pollyanna De Lima, Economics Associate Director at IHS Markit, said, adding that there was a substantial pick-up in intakes of new work, with some contribution from international markets.
With sales rising at a stronger rate, firms scaled up production and purchased additional inputs. There was also a faster upturn in international sales and an improvement in business confidence, the survey said. To accommodate for rising sales and progress with production schedules, companies purchased additional raw materials and semi-finished items. Another factor that supported the uptick in input buying was a common view that production would increase in the year ahead.
"Companies forecast further growth of sales as pandemic-related restrictions continue to ease," the survey noted. September data highlighted little change to manufacturing sector employment during September. "In some instances, survey participants indicated that the government guidelines surrounding shift work prevented hiring," Lima said.
On the prices front, rising fuel, raw material and transportation prices pushed the overall rate of input cost inflation to a five-month high. Output prices, however, increased at a slower and only moderate rate. "After subsiding in each of the previous two months, cost inflationary pressures intensified in September. Strong demand for scarce products contributed to the increase in input costs, as did rising fuel and transportation rates," Lima said.
Economists believe the Reserve Bank of India is expected to continue with the accommodative policy stance in its October 6-8 monetary policy discussions. On the macro-economic front, subdued prices of food items like vegetables pulled down retail inflation for the third month in a row to 5.3 percent in August, within the RBI's comfort zone.
Retail inflation, which rose sharply to 6.3 percent in May from 4.23 percent in April, has been on a downward trajectory since then. It was 6.26 percent in June and 5.59 percent in July this year.