India's manufacturing sector activity in August witnessed the second-strongest improvement in operating conditions in nine months, boosted by strengthening demand conditions and softening inflation concerns, a monthly survey said on Thursday.
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.
The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) was little changed from July's reading of 56.4, posting 56.2 in August.
The August PMI data pointed to an improvement in overall operating conditions for the 14th straight month. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.
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"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," Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said.
The latest results also indicated that recent inflation concerns somewhat faded, as business sentiment strengthened further from June's 27-month low.
The degree of optimism was at its highest in six years. Predictions of stronger sales, new enquiries and marketing efforts all boosted confidence in August, the survey said.
On the inflation front, 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.
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"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," Lima said.
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, the survey said.
The Reserve Bank of India's Monetary Policy Committee at its meeting from August 3-5, had decided to increase the benchmark lending rate by 50 basis points to 5.40 per cent.
As per minutes of its recent policy meeting, with the price situation remaining at "unacceptably and uncomfortably" high level, members of the RBI's MPC underlined the need for preventing upward drift of inflation and bringing it down to the target band.
The next meeting of the MPC is scheduled for September 28-30, 2022.
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