Manufacturing PMI recovers to 55.3 in Oct amid contained price pressures

India’s Purchasing Managers’ Index (PMI) for manufacturing recovered slightly in October to 55.3 from 55.1 in September as growth remained robust and price pressures were contained.

The survey compiled by S&P Global reflected an improvement in employment and purchases by factories. A print above 50 in the survey indicates expansion in manufacturing activity. A score below that represents contraction.

“Firms were again able to secure additional work in October, taking the current sequence of growth to 16 months. Overall, factory orders increased at an above-trend pace that was nonetheless the weakest since June. New export orders also rose markedly, with the pace of expansion ticking higher,” the survey said.

Retail inflation had increased to 7.41 per cent in September, from 7 per cent in August, and remains above the Reserve Bank of India’s (RBI’s) tolerance limit for the ninth consecutive month, but goods producers have enjoyed a contained inflationary environment in October, it added.

“The overall rate of cost inflation was the second-weakest for two years, ahead of that registered in the prior survey period. In turn, manufacturers limited hikes to output prices.”

To rein in inflation, the RBI has hiked its key interest rate by a cumulative 190 basis points since early May.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said the Indian manufacturing industry showed resilience as factory orders and production rose strongly in October despite losing growth momentum.

“Manufacturers continued to loosen the purse strings as they expect demand buoyancy to be sustained in coming months. There was a marked rise in input purchasing, with firms adding to their inventories to better align with client purchasing. Capacities were again expanded to accommodate for improving sales. The Future Output Index component indicated robust business optimism towards the year-ahead outlook for output,” she said.

Indian manufacturing firms faced substantial capacity pressures, as outstanding business volumes rose to the greatest extent in almost two years.

“Some firms responded to this by hiring extra workers. Manufacturing employment increased at a marked rate that was one of the strongest since data collection started in March 2005”, the survey said.

Earlier, the Organization for Economic Co-operation and Development (OECD) and S&P last month had kept its growth forecasts for India unchanged at 6.9 per cent and 7.3 per cent, respectively, for FY23, though they had highlighted the growing downside risks.

“Softer external demand is a factor in India’s projected slowdown from 8.7 per cent annual growth in 2021-22 to around 7 per cent in FY23 and around 5.75 per cent in 2023-24. However, this still represents rapid growth in the context of a weak global economy,” OECD said in its interim Economic Outlook.