India's Manufacturing Growth Continues Higher As Input Cost Inflation Recedes Further

A sustained improvement in demand conditions boosted new order intakes at Indian manufacturers during August, which in turn pushed output growth to a nine-month high, S&P Global India Manufacturing Purchasing Managers' Index showed.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index was little-changed from July's reading of 56.4, posting 56.2 in August and signalling the second-strongest improvement in operating conditions since last November.

"Production volumes were also supported by a pick-up in exports and upbeat projections for the year-ahead outlook. Firms were at their most optimistic for six years. On the supply side, the results showed a further shortening of delivery times and a slower upturn in prices charged by vendors. The rate of input cost inflation softened to the weakest in a year, but the passing of higher freight, labour and material prices to clients kept the pace of increase in output prices little-changed from July," a release stated.

Contributions to the PMI from sub-indices varied as faster increases in new orders and output compared with slower expansions in employment and stocks of purchases. Delivery times, which is inverted before entering the calculation, shortened to the greatest extent in close to five years. Indian manufacturers reported the fastest increase in production in nine months, which they attributed to greater sales, recent efforts to enhance capacities, fewer COVID-19 restrictions and product diversification.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said: "Indian manufacturers continued to benefit from the absence of COVID-19 restrictions, with rates of growth for both output and new orders picking up yet again to the strongest since last November.

"This robust performance was complemented by a fourth successive monthly slowdown in the rate of input cost inflation, which slipped to the lowest in a year amid softer pressures from commodity prices. Factory gate charges rose at the second-weakest pace since the start of fiscal year 2022/23, one that was similar to July. "Firms welcomed the weaker increase in input costs with and upward revision to output forecasts amid renewed hopes that contained price pressures will help boost demand. Inflation concerns, which had dampened sentiment around mid-year, appear to have completely dissipated in August as seen by a jump in business confidence to a six-year high."

Although manufacturers continued to signal higher prices for a wide range of materials in August, the overall rate of cost inflation softened to a one-year low as commodity prices (particularly aluminium and steel) moderated. There was a moderate upturn in factory gate charges in August as monitored companies lifted their fees in line with the passing on of higher freight, labour and material costs to clients.

"Strong sales growth and a rise in production requirements supported a further increase in input buying at manufacturers. Despite easing from July, the pace of expansion remained sharp. Firms also noted that lead times on inputs continued to shorten in August, with the latest improvement in vendor performance mild but the greatest in close to five years," the S&P Global India Manufacturing Purchasing Managers' Index release stated.