Two separate sets of macro-economic data, one from the government on output in eight key industries in August, and the other, IHS Markit’s survey-based Purchasing Managers’ Index (PMI) for the manufacturing sector from September, collectively Points to a recovery. in industrial activity. Provisional data, based on an index of eight core industries spanning from coal to fertilizers, show that overall production grew 11.6% year-on-year in August, significantly outpaced by 15.3% and 5.1% expansions in power and steel production, respectively. got help. Two industries were also among the only three sectors that expanded month-on-month since July, with natural gas taking third place, with weightings of around 20% and 18% in the index. Power generation is expected to pick up pace in August due to sluggish monsoon activity as well as increase in widespread industrial power consumption. And improving government spending on infrastructure projects should have reduced steel demand. Refinery products, the largest component of the index, registered a rise of 9.1% in August 2020 with gradual easing of restrictions related to the pandemic. However, a nearly 9% decline in diesel consumption from the previous month saw the sector witness a gradual contraction of 5.5%. The report on fuel consumption trends since September points to a significant slowdown last month, a less-than-encouraging sign, especially when one considers the renewed upward trend in pump prices of automobile fuel. Moreover, power demand was also hit last month, with September rains exceeding the long-term average for the month by a large margin.
September’s more contemporary PMI data shows factory orders and outputs expanding sharply over the previous month, with a PMI reading of 53.7 from August’s reading of 52.3. Manufacturers reported favorable market conditions and improved sales volume, with consumer goods makers leading the pack. While some increase in orders from manufacturing companies is clearly linked to better demand for Indian products in international markets, a trend was reflected in a jump of over 21% in merchandise exports last month, a large part linked to inventory build- In view of the festive season. However, IHS Markit’s survey of manufacturing firms also shows a lack of fresh hiring for the second consecutive month, as well as price pressure from higher fuel and transportation costs. The formal manufacturing industry is wary of adding more employees, and with the MSME sector still struggling to recover from the COVID-19 hit, lack of employment and declining household income is bound to constrain consumer spending. The current quarter holds the key to determining how sustainable the recovery may be.
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