Business activity in India’s manufacturing sector continues to recover from the impact of the second wave of the coronavirus pandemic. But there are still some challenges that could hinder this revival.
The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey showed that the headline index stood at 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 the second quarter of FY22, 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 warn of some other downsides that could hinder a rapid economic recovery.
“Looking ahead, we maintain that a return of mid to high 50 headline readings is unlikely after last year’s nationwide lockdown, due to the additional damage caused by the Delta outbreak to domestic and corporate balance sheets,” said Miguel Chanko Senior, Economist of Asia, Pantheon Macroeconomics. He further added that consumer confidence and new investment plans have not turned a corner yet. More broadly, the slowing impact of a recovery in global oil prices will begin to squeeze the broader economy, which remains heavily dependent on imported fuels.”
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.
Sharing a similar warning, Darren A, Asia Economist, Capital Economics Ltd., said, “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.” It highlighted that there is evidence that some parts of the manufacturing sector, especially carmakers, are cutting production as a result of supply shortages. are doing.
No wonder business trust among producers has been affected. Also, despite the gradual improvement in the health of the Indian manufacturing sector, the employment outlook remains gloomy. The survey report showed little change in manufacturing sector employment during September, as many firms reported compliance with government guidelines around shift work.
Of course, a bright spot in this gloom is that India’s immunization campaign continues to gain momentum. However, given the huge population, economists say it will still take a few more quarters to vaccinate the entire country, which could delay a full recovery.
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