Indian manufacturing has moved into higher gear for first time in 10 months, Team IFM reports.
Mumbai, February 3: Indian manufacturers rode a spurt in demand from domestic and overseas clients to register the sector’s fastest growth over the past 10 months in January, signalling an improvement in operating conditions, HSBC said on Monday.
The HSBC India Purchasing Managers’ Index (PMI) posted 51.4, up from 50.7 in December, the highest reading since March 2013, but at the same time, it pointed to only a “marginal pace of expansion that was well below the series average” of 55.1, HSBC said in a statement.
“Manufacturing activity moved into higher gear led my faster growth in new orders,” said Leif Eskesen, Chief Economist for India and ASEAN at HSBC.
The report comes on the heels of revised estimates of the India’s Statistics Office (CSO) that painted a gloomy picture of the economy, and showed the country’s economic growth had hit a decade’s low in 2012-13 at 4.5 per cent – lower than the 5 per cent projected earlier.
Manufacturing Cheers
January saw new orders for manufacturers expanding at the quickest rate in 10 months, with participants in the HSBC’s manufacturing PMI survey reporting stronger demand from both domestic and overseas clients.
Concurrently, new business from abroad grew at a solid pace that was the fastest since June last year, the survey results showed.
Subsequently, Indian manufacturers also raised their production levels for the third successive month – ensuring that the rate of output growth was the strongest since February 2013.
Sector data indicated that consumer goods continued to outperform the remaining two monitored categories, while operating conditions deteriorated at capital goods producers. Growth rates for output and new orders in the consumer goods subcategory surpassed those seen at intermediate goods companies.
Employment rose for the fourth month running in January, with all three broad areas of the manufacturing economy posting job creation. Despite being slight, the overall rate of expansion was broadly in line with the long-run series average.
Delivery Pressure
Companies operating in the Indian manufacturing sector signalled pressure on operating capacity in January, as backlogs of work increased solidly. Moreover, the latest increase in unfinished work was the eighteenth in as many months.
All three market groups posted higher work-in-hand, with the sharpest increase noted at consumer goods firms.
Meanwhile, supplier performance improved in the latest month for the first time since September 2013. Anecdotal evidence suggested that shorter delivery times reflected a greater availability of raw materials at vendors.
Amid reports of new business gains, purchasing activity in the Indian manufacturing economy rose at the start of 2014, although the pace of expansion was only slight and well below the series average. Growth of buying activity was largely centred on the consumer goods sub-sector.
Pre-production stocks increased at consumer goods producers, but fell at both capital and intermediate goods firms. This resulted in an overall decline of stocks of purchases across the Indian manufacturing economy as a whole.
Average input costs rose in January, with manufacturers reporting higher prices for a range of raw materials, including metals, chemicals and energy. The rate of cost inflation remained robust. Consequently, companies raised their tariffs again.
Growth Prospects
Although the strongest in three months, the latest rise in output charges was moderate and much weaker than seen for input costs.
“However, inflation pressures also firmed, suggesting that the RBI has to keep up its inflation guards,” said HSBC’s Eskesen.
The HSBC PMI report came three days after India’s central bank in its macroeconomic outlook said the manufacturing sector was stagnating.
On January 31, the CSO in its revised estimates painted an even gloomier picture, saying growth figures for 2012-13 were actually lower than that projected earlier because of an upward revision of growth data for the previous fiscal year.
For instance, agriculture grew 1.4 per cent in 2012-13 against the CSO’s earlier estimate of 1.8 per cent, while mining production actually fell 2.2 per cent instead of growing 0.4 per cent as estimated earlier.
Similarly, it said, construction witnessed a sharpest contraction of 1.1 per cent against the 5.9 per cent expansion estimated earlier.
On January 27, India’s central bank said though growth would be marginally higher in the second half of the April 2013-March 2014 financial year than in the first, it would mainly be due to a enhanced performance in agricultural production and higher exports.
The Reserve Bank of India (RBI) also revised its growth projection for the current financial years to below 5 per cent but was upbeat over 2014-15.
“A moderate paced recovery is likely to shape in the next year with support from rural demand, a pick-up in exports and some turnaround in investment demand,” it said. “The growth in 2014-15 is likely to be in the range of 5 to 6%, with likelihood of it being in higher reaches of this forecast range as project clearances translate into investment, global growth outlook improves, and inflation softens.”
The International Monetary Fund (IMF) and the World Bank, too, think there would be a significant pickup in growth in the next financial year beginning April 1, and have projected economic growth at 5.4 per cent and 6.2 per cent, respectively.