Manufacturing activity in India, as indicated by the Purchasing Managers’ Index (PMI), rose to 54.2 in February from 53.2 in January because of restocking and rise in new orders. However, fall in export orders and inflation are of concern.
Finished goods inventory that was on a downtrend since previous four months rose to 51.3 from 48.2 in January. This along with increase in domestic demand led to higher production in February. “The rise appears mainly due to finished goods inventory restocking, which has lifted output and domestic new orders,” said Sonal Varma and Aman Mohunta, economists at Nomura.
However, exports decelerated to 53.2 from 54.6 in January. Also, input prices rose to 58.9 and output price inflation rose to a six-month high of 57.9 from 55 a month ago. This suggests that core inflation may start to pick up in the coming months, said economists at Nomura. Another worrying factor was accumulation in backlogs of work and lengthening supplier delivery times indicating capacity tightness along supply chain.
Going forward, the recovery is expected to continue, though at a slower pace. “While growth is expected to recover on the back of continued reforms and, eventually, a more conducive global economic backdrop, the recovery is going to be protracted as it takes time to rid the economy of its structural speed bumps,” said economists Leif Lybecker Eskesen and Prithviraj Srinivas at HSBC.