India's factory activity expanded for the seventh straight month in February, driven by strong demand and increased output, according to a private sector survey that also showed input costs inflation hitting a 32-month high. Although the Nikkei Manufacturing Purchasing Managers' Index , compiled by IHS Markit, eased slightly to 57.5 in February from 57.7 in January, it was well above the 50-level separating growth from contraction.
Sub-indexes showed output and new orders rose sharply last month, albeit at a slower pace than in January, indicating strong demand. "Indian goods producers reported a healthy inflow of new orders in February, a situation that underpinned a further upturn in output and quantity of purchases," noted Pollyanna De Lima, economics associate director at IHS Markit.
India's economy returned to growth after two quarters of contraction and expanded 0.4% in the Oct-Dec quarter over a year ago, government data showed on Friday, a tad lower than 0.5% growth expected in a Reuters poll. Firms shed jobs again in February, albeit at a modest pace, amid ongoing government-imposed restrictions on workplaces due to the coronavirus.
Still, purchases of raw materials increased at the fastest pace in nearly a decade as firms safeguarded against shortages and to meet high production needs. Strong demand for raw materials and semi-finished items, alongside supply chain disruption due to coronavirus restrictions, pushed cost inflation to its highest since mid-2018.
High inflation was a concern for the Reserve Bank of India last year but it has eased recently. "The upbeat mood supported the fastest increase in input buying for almost a decade as companies focused on rebuilding their input stocks to fulfill demand growth. February data showed the sharpest monthly rise in pre-production inventories in the survey history," added De Lima.
Firms passed some of the cost burden to consumers by increasing their prices but that pace was slower than in January and much weaker than the rise in input cost.
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