PMI growth of nearly 60% is not only a decade-high record but also reflects how fast the manufacturing sector is recovering lost ground.
A headline-grabbing near-60% expansion in factory output is the perfect Diwali gift that India could bestow upon its citizens - and has added a fresh round of optimism on the fundamental strength and resilience of the Indian economy amid the festive cheer even as the country battles the coronavirus pandemic.
According to IHS Markit, India's manufacturing Purchasing Managers' Index (PMI) grew at 58.9 for the month of October - not only registering a decade-high for the index but also quickly recovering lost ground in the manufacturing sector and taking pole position in global economic recovery.
The best part is the confirmation that India's manufacturing sector activity improved for the third straight month in October, as revealed in the survey of purchasing managers of 400 manufacturers. In PMI parlance, an index reading above 50 indicates robust growth. “New orders and output at Indian manufacturers continued to recover from Covid-19-induced contractions seen earlier, with PMI results for October highlighting historically sharp monthly rates of expansion,” said Pollyanna De Lima, economics associate director, IHS Markit.
The data was announced a day after Indian GST collection figures for October showed a robust uptick, rising past the 1 trillion mark, in yet another strong indication that economic recovery was gaining ground after the lifting of lockdown restrictions across the country.
According to the IHS Markit, growth in the monthly PMI was led by the intermediate goods category, but there were also robust expansions in the consumer and investment goods sub-sectors.
Manufacturers indicated that the ongoing relaxation of Covid-19 restrictions, better market conditions and a surge in demand helped them secure new work in October.
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Also, the upturn in sales was the strongest since mid-2008, while new export orders rose at a quickest pace in close to six years. Greater production needs led to another monthly increase in input buying among Indian manufacturers. Further, quantities of purchases rose at the quickest pace in just under nine years.
The rise in demand as well as output has also been helped by the dynamic management of inflationary pressures in the Indian economy - in part by the intervention of the Reserve Bank of India (RBI) - which remained subdued as seen by a modest increase in input costs and only marginal rise in selling prices.
The PMI data is great news also for consumers, businesses and investors - as it showed a strong spike in electronic permits for goods movement (e-way bills) for October, indicating that more goods were shipped within and across states in the month.
Generation of e-way bills in October was 21% higher than what was generated in October 2019 and 11% higher than what was generated in September this year, reflecting an increased economic activity in October.
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Of course, economists have cautioned that the real test of the resilience of the Indian economy will be to sustain this momentum beyond the festive season.
Despite the healthy increase in demand, for instance, manufacturers recorded a further reduction in employment.
“There was disappointing news on the employment front, with October seeing another reduction in payroll numbers. Survey participants that noted job shedding mentioned having observed containment measures to halt the spread of the coronavirus disease 2019,” the survey said. This indicates employers are cautious, despite their optimism that things will improve in the coming months.
While that caution is well warranted, the extent of recovery becomes apparent when one considers that the Indian economy was the deepest hit in the month of April due to the rapid spread of the coronavirus pandemic, with industrial output plummeting to a record contraction of 57% during that month.
With the bright outlook of the industrial manufacturing and export sector and soaring levels of confidence in the economy, Indian businesses and investors can therefore continue their festive cheer well beyond Diwali to Christmas and the New Year.