India’s factory activity improved in September as demand increased

India’s factory activity improved last month as an economic recovery from the pandemic-induced slump boosted demand and production, according to a private survey, but companies cut headcount the most since May.

This recovery could continue for at least a few more months, aided by ultra-loose monetary policy and sustained budget spending.

A hike in the Reserve Bank of India’s policy rate seems like a rare opportunity until at least next fiscal year, and the Indian government said earlier this week it would continue its debt-financed spending to revive the economy.

The manufacturing purchasing managers’ index compiled by IHS Markit rose from 52.3 in August to 53.7 in September, staying above the 50 mark that separates growth from contraction for the third consecutive month.

“Indian manufacturers increased production more sharply in September as they geared to improving demand and restocking,” said Pollyanna De Lima, deputy director of economics at IHS Markit.

“There has been a significant increase in the intake of new work, with some contribution from international markets.”

Due to the improved domestic and international demand, incoming orders rose faster in September and the factories increased production much faster than in August.

However, this failed to move factories to hire more workers – a much-needed move to improve sluggish labor market conditions – and instead reduced their workforce faster than ever in four months.

“Companies continued to buy additional supplies in September, but jobs didn’t change much during the month. In some cases, respondents indicated that government policies on shift work prevented employees from being hired, ”added De Lima.

Meanwhile, input cost inflation hit a five-month high after weakening in the first two months of the last quarter, partly due to rising fuel prices, transportation costs and supply chain disruptions.

However, producer prices rose more slowly, suggesting that companies were only partially able to pass the additional costs on to customers.

Nonetheless, optimism for the coming year improved slightly last month as a further easing of the pandemic mobility restrictions raised hopes of a further improvement in demand.

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