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Manufacturing growth moderates in Aug on COVID-19 curbs, surging input costs: PMI

Manufacturing growth moderates in Aug on COVID-19 curbs, surging input costs: PMI

The index for manufacturing dipped to 52.3 in August from 55.3 in July, indicating a softer growth rate that was subdued and below its long-run average

The August PMI data alluded to an improvement in overall operating conditions for the second straight month The August PMI data alluded to an improvement in overall operating conditions for the second straight month

Manufacturing activity in India moderated in August as business orders and production increased at softer rates because of the COVID-19 pandemic as well as rising input costs, IHS Markit Purchasing Managers' Index (PMI) showed on Wednesday. 

This comes a day after the GDP (Gross Domestic Product) data demonstrated robust manufacturing growth in Q1 of FY22. 

The index for manufacturing dipped to 52.3 in August from 55.3 in July, indicating a softer growth rate that was subdued and below its long-run average. In PMI parlance, a reading above 50 demonstrates expansion and one below indicates contraction. 

Also Read: India records Q1 FY22 GDP growth at 20.1% on low base, improved manufacturing

PMI stood at 48.1 in June. The August PMI data alluded to an improvement in overall operating conditions for the second straight month.

"August saw a continuation of the Indian manufacturing sector recovery, but growth lost momentum as demand showed some signs of weakness due to the pandemic. Yet, factory orders and output rose across the consumer, intermediate and investment goods categories," Pollyanna De Lima, Economics Associate Director at IHS Markit, said.

A softer upturn in sales led companies to pause their hiring efforts, with business confidence dampened by concerns surrounding the damaging impact of COVID-19 on demand and firms' finances, the survey said.

"Uncertainty regarding growth prospects, spare capacity and efforts to keep a lid on expenses led to a hiring freeze in August, following the first upturn in employment for 16 months in July," Lima said.
August data pointed to back-to-back increases in new export orders, but here too growth lost momentum. The pace of expansion was only marginal.

Indian manufacturers signalled another monthly rise in cost burdens, thereby taking the current stretch of inflation to 13 months. The rate of increase softened but remained elevated by historical standards. Cost pressures were linked by survey members to raw material scarcity and transportation problems.

Also Read: Asia factory activity loses momentum in August due to COVID-19 disruptions

"Charges levied by manufacturers rose as some firms shared part of their additional cost burdens with clients, although to a lesser degree than selling prices. Input prices increased sharply, due to strong competition for scarce raw materials and transportation issues," Lima said.

Lima further noted that "the 12-month outlook for production remained positive, though confidence faded amid worries concerning the lasting scars of the pandemic and the adverse impact of rising costs on companies' finances parallel to a lack of pricing power."

On the macroeconomic front, the Indian economy grew by a record 20.1 per cent in the April-June quarter, helped by a very weak base of last year and a sharp rebound in the manufacturing and services sectors in spite of a devastating second wave of COVID-19.

Meanwhile, Reserve Bank of India (RBI) Governor Shaktikanta Das on Tuesday said that the RBI will conduct fine-tuning operations to manage unanticipated and one-off liquidity flows to ensure balanced liquidity conditions in the system.