India’s October factory growth at decade high as demand bounces back

Economy


BENGALURU: India’s factory activity expanded at its fastest pace in over a decade in October as demand and output continued to recover strongly from coronavirus-related disruptions, but firms cut more jobs, a private survey showed.

Asia’s third-largest economy is healing after shrinking a record 23.9% in the April-June quarter. The Indian government has removed most restrictions imposed to control the spread of the virus, though infections continue to climb and now number over 8 million people.

The Nikkei Manufacturing Purchasing Managers’ Index , compiled by IHS Markit, rose to 58.9 in October from September’s 56.8. The reading was the highest since May 2010 and above the 50-level separating growth from contraction for the third straight month.

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“Levels of new orders and output at Indian manufacturers continued to recover from the COVID-19 induced contractions seen earlier in the year,” said Pollyanna De Lima, economics associate director at IHS Markit.

“Companies were convinced that the resurgence in sales will be sustained in coming months, as indicated by a strong upturn in input buying amid restocking efforts.”

— IHS Market Economist

“Companies were convinced that the resurgence in sales will be sustained in coming months, as indicated by a strong upturn in input buying amid restocking efforts.”
Both output and new orders, which tracks overall demand, grew at their sharpest rates in more than 12 years and foreign demand expanded at its quickest pace since December 2014.

But firms cut staff for the seventh month in a row, a streak not witnessed since the survey began in 2005, signaling a quick recovery in the consumer-driven economy may be a distant possibility.

“But firms cut staff for the seventh month in a row, signaling a quick recovery in the consumer-driven economy may be a distant possibility.”

— Tough Road to Recovery

Input and output prices increased at a faster pace last month, although most of the burden of rising price pressures was carried by firms.

That could lead overall retail inflation, which rose to an eight-month high of 7.34% in September, to remain above the Reserve Bank of India’s medium-term target of 2-6% in coming months, reducing the chances of further easing by the central bank.

However, business optimism about the coming 12 months increased to its highest level since August 2016.

“Confidence towards the year-ahead outlook for production improved as firms hoped that fewer COVID-19 cases and the reopening of other businesses could boost output growth,” added De Lima.



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