Manufacturing recovery strengthens in April, but costs surge

India’s manufacturing sector recorded an acceleration in new orders and output in April, as per the S&P Global India Manufacturing Purchasing Managers’ Index (PMI), which rose from 54 in March to 54.7 last month, even as inflationary pressures intensified. A reading of 50 on the index indicates no change in business activity levels.

New export orders rebounded in April after a fall in March, but consumer goods producers reported a contraction during the month. Rising commodity prices pushed up input costs at the fastest pace in five months, while the rate at which producers passed on higher costs to consumers was the sharpest in a year.

While there was some improvement in business confidence levels in the first month of the financial year, overall optimism remained subdued with several firms noting that the year ahead is difficult to predict. Most producers did not change their employee strength in April, but a few reported a mild increase, largely as firms are still operating below their current capacity limits.

“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,” said Pollyanna De Lima, economics associate director at S&P Global.

Companies had responded 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 noted, stressing that expectations about growth prospects remain subdued.

Firms signalled a further upturn in input costs during April, with chemical, electronic component, energy, metal, plastic, and textile costs reportedly higher than in March. Increases were partly attributed to rising transportation fees and the war in Ukraine and the overall rate of inflation strengthened to a five-month high and outpaced its long-run trend, S&P Global said in a statement.

Despite the higher costs, firms ramped up input purchases in April at the fastest pace since November 2021, as per the PMI, which is compiled based on responses to questionnaires sent to purchasing managers in a panel of around 400 manufacturers.

“Additional cost burdens continued to be shared with consumers in April, as evidenced from another increase in selling prices. The rate of inflation was solid and the fastest in one year,” S&P Global said.