The S&P Global’s India Manufacturing Purchasing Managers’ Index (PMI) showed a “robust” improvement in manufacturing sector conditions across India on the back of new orders and output increased. As per the agency, new orders and output rose at “quickest rates in nearly three years during August.” The manufacturing PMI rose to 58.6 in August from 57.7 in July, “the second-best improvement” in the sector for nearly three years and the highest in the past three months.

The global rating agency said that this uptick was on the back of firms gearing up to handle rising demand by scaling up buying levels and rebuilding their input stocks. “International sales added to manufacturers’ total order books. Not only did new export orders increase for the seventeenth month running halfway through the second fiscal quarter, but also to the greatest extent since November 2022. Panel members reported having secured new work from clients in Bangladesh, China, Malaysia, Singapore, Taiwan, and the US. A healthy demand environment and favourable market conditions encouraged Indian manufacturers to step up production,” said S&P Global.

Adding that manufacturers purchased additional raw materials and semi-finished items in August to keep production lines running smoothly. Buying levels rose sharply and at one of the fastest rates seen in over 12 years.

India, the third-largest economy in Asia, saw strong growth of 7.8 per cent in the April-June period, NSO data showed on Thursday.

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However, as per the S&P Global report, business sentiment declined to its lowest point in three months, primarily due to worries about inflation. The agency said that cost inflationary pressures accelerated but there was a slower uptick in selling charges.

“Price signals were mixed in August, with a quicker increase in input costs contrasting with a softer uptick in factory gate charges. The latter rose at the slowest pace in four months, whereas cost inflation picked up to its strongest in a year, with companies noting higher fees for cotton, foodstuff, rubber, steel and machinery spare parts,” the rating agency said. Adding Indian manufacturers hired a combination of permanent and temporary staff on both part- and full-time bases. New order growth was cited as the main reason behind job creation. Overall employment rose at the slowest pace in four months.  

“Upward revisions to marketing budgets, better customer relations, demand strength and a healthy number of client enquiries underpinned upbeat forecasts among manufacturers regarding the year-ahead outlook for production. Although historically elevated, the overall level of positive sentiment slipped to a three-month low due to inflation concerns,” it said. 

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said, “Robust and accelerated increases in new orders and production suggest that the sector looks set to provide a strong contribution to second quarter (fiscal) economic growth. Companies’ strategic focus towards a global orientation were evident via a sharp and quicker expansion in international sales.”

“The presence of stronger cost inflationary pressures serves as a reminder of the challenges inherent in managing growth. Firms addressed rising input prices by lifting selling charges. However, the need to maintain competitiveness helped restricted charge inflation,” De Lima added.