Indian manufacturing sector grows in January

03 Feb '16

3 min read

The new year has brought some cheer to the economy. Indian manufacturing sector growth rose to a four-month high in January driven by rising inflows of new business orders from domestic as well as export clients, says a Nikkei survey.

Following the contraction in December in the wake of Chennai floods, January saw the Indian manufacturing sector rebound into expansion territory, as production and new orders recovered, the report said.

At 51.1 in January, up from 49.1 in December, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) – a composite single - figure indicator of manufacturing performance – moved back above the 50.0 mark. Although the rate of expansion was only moderate, it was the sharpest in four months.

“The opening month of 2016 saw a rebound in new business – from both domestic and external clients – leading manufacturers in India to scale up output following a short-lived downturn recorded in December. Whereas the trends in the growth rates are relatively weak in comparison with the long-run series averages, January's PMI data paint a brighter picture of the Indian economy,” said Pollyanna De Lima, Economist at Markit and author of the report.

Levels of production and total new business also registered mild increases following contractions in the prior survey month. The consumer goods sub - sector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contrast, producers of investment goods saw output and new orders fall, while production volumes stagnated in the intermediate goods category, the report said.

The trend in new export order inflows strengthened during January, amid reports from companies of improved sales demand. The level of incoming new export business has now risen in each of the past 28 months.

January saw further mild job creation in the Indian manufacturing sector, with headcounts added to across the consumer, intermediate and investment goods categories. Where an expansion of payroll numbers was reported, this was generally linked to rising production requirements.

The latest data suggested, however, that January's increase in employment was insufficient to reduce the pressure on manufacturers' capacity.

This was highlighted by a further accumulation of backlogs of work at factories, the third in as many months. Moreover, the rate of increase accelerated to its highest since March 2015.

Price pressures remained on the upside at the start of 2016, with input costs and output charges both rising during January. Companies indicated that higher demand for raw materials had led to a number of cost increases. However, the rate of input cost inflation eased slightly and stayed below the long-run survey average.

Factory gate prices rose for the fourth successive month in January, with the rate of increase ticking up to a 14-month high. Survey respondents reported that charges had been raised in order to pass on part of the increase in purchasing costs.

January saw a modest increase in stocks of purchases, mainly the result of a further rise in the level of input buying activity. In contrast, inventories of finished products fell again. (SH)

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