India’s return to manufacturing PMI offers little comfort

The latest IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey showed that the headline index was 53.7 in September, up from 52.3 in August. The rise in the headline index was driven by a jump in new orders and output sub-components of the PMI.

Further, for Q2FY22, the PMI averaged 53.8, up from 51.5 in the previous quarter. A reading above 50 indicates expansion and below the threshold indicates contraction. However, economists have warned of some other downsides that could hinder a rapid economic recovery.

Miguel Chanco said, “Looking ahead, we believe a return to the mid to high 50 headline reading is unlikely after last year’s nationwide lockdown, as the Delta outbreak caused additional damage to domestic and corporate balance sheets. ” Senior Asia Economist, Pantheon Macroeconomics. That said, consumer confidence and new investment plans are yet to turn a corner, and the impact of a correction in global oil prices will begin to squeeze the broader economy, which is heavily dependent on the fuel. Import.

Increase in fuel, raw material and transport prices pushed the overall rate of input cost inflation to a five-month high. However, production prices rose at a slower pace, the survey report showed.

Darren Aw, Asia Economist at Capital Economics Ltd., shared a similar warning, saying: “We think the recovery is now poised to enter a slow phase. For a start, there are signs among other indicators that the initial boost to activity from looser containment measures is fading. In addition, global supply constraints could soon weigh on production.”

AW said there is evidence that some parts of the manufacturing sector – especially carmakers – are cutting production due to lack of supply. So not surprisingly, business trust among manufacturers hasn’t improved much. Further, for Q2FY22, the PMI averaged 53.8, up from 51.5 in the previous quarter. Also, despite the gradual improvement in the health of the Indian manufacturing sector, the employment outlook remains bleak. The survey showed little change in manufacturing sector employment in September, as many firms reported compliance with government guidelines around shift work.

Of course, a bright spot in this gloom is that the pace of vaccination in India has been steadily increasing. However, given the huge population, economists said it would still take a few more quarters to vaccinate the entire country, which could delay a full recovery.