India's manufacturing sector activity strengthens in January

The scaled up production by firms was the sixth in successive months and the quickest since last October.

The rise in India's manufacturing activity in January 2021, signals the strongest improvement in the health of the sector in three months.

India's manufacturing sector activity strengthened in January as companies scaled up production at the quickest pace in three months in response to faster expansions in total sales and new export orders, a monthly survey said on Monday.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index rose from 56.4 in December to 57.7 in January, to signal the strongest improvement in the health of the sector in three months.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"The Indian Manufacturing PMI remained well inside positive territory in January, signalling a sixth consecutive improvement in business conditions and moving further away from the COVID-related contractions recorded around mid-2020," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Sustained sales growth supported a further upturn in manufacturing sector output in January. The rise in production was the sixth in successive months and the quickest since last October.

"Factories continued to ramp-up production at an abovetrend pace, and the sustained upturn in new work intakes suggests that there is room for capacity expansion in the near-term. Jobs fell at the start of the year, but did so at the weakest pace in the current ten-month stretch of contraction," Lima said.

Despite the pick-up in demand, manufacturing sector jobs decreased further in January. Companies that refrained from hiring mentioned the observance of government norms to keep workers to a minimum.

On the inflation front, price pressures intensified, driven by capacity constraints in supply chains.

“An important insight from the January survey was a pick-up in inflationary pressures, as lingering supply-side squeeze drove the sharpest increase in purchasing costs for over two years," Lima noted.

Meanwhile, business sentiment improved on the back of vaccine rollout, increased marketing budgets and projects in the pipeline.

"Companies cheered the roll-out of COVID-19 vaccines and became more optimistic towards growth prospects, a position that is supportive of investment and job creation as businesses attempt to rebuild their inventories of finished goods and meet demand needs," Lima noted.

Experts believe the Reserve Bank is likely to maintain a status quo on benchmark interest rate in its next monetary policy meet outcome to be announced on February 5.