Two separate sets of macro-economic data, one from the Government on output at eight core industries in August , and the other, IHS Markit’s survey-based Purchasing Managers’ Index (PMI) for the manufacturing sector from September, collectively point to a recovery in industrial activity. The provisional figures based on the Index of Eight Core Industries spanning coal to fertilizers show overall output grew 11.6% year-on-year in August, helped substantially by expansions in electricity and steel production of 15.3% and 5.1%, respectively. With weights of almost 20% and 18% in the index, respectively, the two industries were also among the only three sectors that posted month-on-month expansions from July, with natural gas being the third. Electricity output was likely buoyed by the lull in monsoon activity in August, as well as an uptick in broader industrial power consumption. And improved Government spending on infrastructure projects ought to have undergirded demand for steel. Refinery products, the largest constituent of the index, recorded 9.1% growth over August 2020 with the gradual easing of the pandemic-related restrictions. However, an almost 9% slump in diesel consumption from the preceding month saw the sector post a 5.5% sequential contraction. Reports on fuel consumption trends from September point to a significant slowdown last month, a less-than-encouraging sign especially when one considers the renewed uptrend in the pump prices of automobile fuels. Also, with rains in September exceeding the long-period average for the month by a sizeable margin, power demand too was hit last month.
The more contemporary September PMI data show factory orders and output expanded faster than in the preceding month, with the PMI reading of 53.7 outpacing August’s 52.3. Manufacturers reported favourable market conditions and improvements in sales volumes, with makers of consumer goods leading the pack. While some of the increase in orders at manufacturing companies is clearly linked to improved demand for Indian products in the international markets, a trend reflected in the more than 21% jump in merchandise exports last month, a substantial part is tied to an inventory build-up in view of the festival season. IHS Markit’s survey of manufacturing firms, however, also reveals a lack of fresh hiring for the second straight month as well as price pressures from high fuel and transport costs. With the formal manufacturing industry seemingly wary of adding more employees, and the MSME sector still struggling to recover from the COVID-19 hit, the lack of employment and reduced household incomes are bound to constrain consumer spending. The current quarter holds the key to determining how durable the recovery could turn out to be.
