At this juncture when the growth momentum of the Indian economy has come under pressure due to the impact of ongoing global recession the surge in the country’s key manufacturing sector in January this year on the back of rising demand is no doubt a healthy and positive development in India’s economic landscape. As per the survey conducted by the HIS Markit—a leading market and economic research body—India Manufacturing Purchasing Managers’ Index (PMI) rose from 52.7 in December to 55.3 in January this year– the highest in nearly eight years—thus reflecting bright patches that are beginning to show up again in the Indian economy.
Purchasing Managers’ Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The PMI dataset features a headline number, which indicates the overall health of an economy. A PMI above 50 indicates expansion. The consumer goods sub-sector again shines bright, while intermediate goods maintained its growth pace. Capital goods are back in an expansion mode, suggesting a potential renewal in investments in the economy.
The PMI indicators also support the upturn in new business from external markets. Fresh export orders have risen the fastest since November 2018, with manufacturers notching higher sales to Asia, Europe and North America. Further, input costs are softening, and this could help improve margins. PMI data shows support came in the softer rises in input costs and output charges. While some companies reported higher prices for metals, textiles and food, others noted lower charges for copper, packaging materials and rubber.
Following the pickup in demand, Indian goods producers increased production in January. The PMI data shows that the rise was the strongest in over seven-and-a-half years, with the rate of expansion much higher than its long-term average. Firms have started to use inventory to cover obligations, resulting in a decline in finished goods inventory. Commenting on the latest survey results on India’s manufacturing sector, Pollyanna de Lima, Principal Economist at IHS Markit, says: “The PMI results show that a notable rebound in demand boosted growth in sales, input buying, production and employment as firms focused on rebuilding inventories and expanding capacities, anticipating further increases in new business.”
So far, hiring is also gaining momentum, which further bolsters economic expansion. Firms increased employment at the quickest rate in nearly seven-and-a-half years, the chief reasons cited being new business growth and projects in the pipeline. Significantly the PMI results show that a notable rebound in demand in India’s manufacturing sector boosted growth of sales, input buying, production and employment as firms focused on rebuilding their inventories and expanding their capacities in anticipation of further increases in new business.
Economists feel that with the recently presented General Budget for 2020-21 putting focus on enhancing investment in wide range of infrastructural development and boosting agricultural production the key manufacturing sector will gain further momentum thus accelerating the demand cycle in overall economy. This in turn will boost the growth momentum. The other important signal one gets from the latest impressive spike in HIS Markit India Manufacturing PMI is that the Indian economy has inherent strength and resilience to counter the ongoing global recession.
The testimony to Indian’s economic strength has already been given by the IMF Managing Director Kristalina Georgieva, who very recently has asserted that Indian economy is not in a recession. She said that the Indian economy indeed experienced an abrupt slowdown last year and the IMF had to revise growth projections, downwards. Now despite ongoing global slowdown IMF is expecting 5.8 per cent growth rate in 2020 and then an upward trajectory to 6.5 per cent in 2021. As the IMF Chief says India has undertaken several important reforms which would be beneficial for the country over the longer term. The world at large is now increasingly realizing that inherent resilience and strength of Indian economy will prove a stabilizing factor for the global economy.
Script: Aditya Raj Das, Senior Economic Journalist