Despite headwinds from high inflation, manufacturing activity in India improved in April, on the back of quicker increases in production, factory orders and international sales, according to a seasonally adjusted monthly survey published Monday. The Manufacturing Purchasing Managers Index (PMI) rose to 54.7 in April, up from 54 in March, beating analyst expectations, which was at 53.8 according to a Reuters survey. This growth is expected to sustain in the near term, however, the commodity price hikes amid ongoing Ukraine crisis and supply chain crunch could dampen the demand.
High inflation could put pressure on costs
“April marks 10 straight months of expansionary readings above 50 for manufacturing activity, but there has been a gradual yet consistent loss of momentum since the beginning of 2022, as price pressures have intensified, and downside risks to growth appear to have risen,” Rahul Bajoria, MD & Chief India Economist, Barclays said. “The core challenge (for manufacturing) though remains from a cost perspective, as the rise in imported price pressures continues to feed through input and output prices, both of which rose further in April, with the output prices index hitting a 12-month high,” he added. Companies have passed on the price rise to customers, but the demand for their goods could be hurt in future, the survey said.
Source: S&P Global India Manufacturing PMI
“A major insight from the latest results was an intensification of inflationary pressures, as energy price volatility, global shortages of inputs and the war in Ukraine pushed up purchasing costs,” Pollyanna De Lima, Economics Associate Director at S&P Global, said in the statement. “Companies responded to this by hiking their fees to the greatest extent in one year. This escalation of price pressures could dampen demand as firms continue to share additional cost burdens with their clients,” she added.
“There was some improvement in business confidence at the start of fiscal year 2022/23. However, the overall degree of optimism remained subdued by historical standards. Some firms foresee further improvements in demand and economic conditions, while others noted that the year-ahead outlook was difficult to predict,” according to the S&P Global India Manufacturing PMI.
The S&P Global India Manufacturing PMI is a monthly survey based on the performance of 500 manufacturing companies in the country, with an aim to understand how the manufacturing sector is performing. When readings are below 50, they indicate contraction while readings above 50 indicate expansion. The survey measures metrics such as new orders, output and employment.