Factory activity in India picked up last month, helped by a solid rise in demand as pandemic restrictions were eased, but rising energy prices pushed input costs to a five-month high, a private survey showed.
International demand also jumped sharply to a 9-month high after contracting in March and above-average domestic demand.
The manufacturing purchasing managers’ index, compiled by S&P Global, improved to 54.7 in April from 54.0 in March.
It beat Reuters survey expectation for 53.8 and was above the 50 mark, which separates growth from contraction, for the tenth straight month.
“Factories continued to increase production at a faster-than-trend pace, with continued increases in sales and input purchases suggesting growth will hold in the near term,” noted Pollyanna De Lima, economics associate director at S&P Global.
That optimism has been underpinned by an easing of Covid-19 restrictions, but a recent spike in coronavirus cases and power shortages could weigh on industrial activity in the coming months.
In fact, the level of business expectations remained subdued compared to previous trends. While some companies forecast better growth over the next 12 months, others said the outlook is difficult to predict.
Businesses hired more workers in April, but the increase was marginal compared to March.
Input costs rose at the fastest pace since November, compounded by higher transportation costs and commodity prices due to disruptions from the Russia-Ukraine war.
As in the previous months, the additional costs were borne by consumers and prices rose more than they had in a year.
“A key takeaway from the recent results was an intensification of inflationary pressures as volatility in energy prices, global input shortages and the war in Ukraine pushed up purchasing costs,” De Lima added.
“This escalation in pricing pressures could dampen demand as companies continue to share additional cost burdens with their customers.”
The Reserve Bank of India is now expected to hike interest rates in June and opt for a steeper rate hike path to tame inflation.
On the jobs front, the survey indicated that there was only a slight increase in employment in April.
With capacity pressures at Indian manufacturers remaining negligible, reflected in a modest increase in backlogs, there was only a modest increase in employment in April, the survey found, adding that a large majority of survey respondents reported an unchanged workforce from March .
April data pointed to some improvement in business confidence. However, the overall level of optimism has remained muted by historical standards.
“Some companies expect further improvements in demand and economic conditions, while others noted that the outlook for the coming year is difficult to predict,” the survey said.
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