India's Manufacturing Expands in July Amid High Cost Pressures
India’s manufacturing grew in July, but high costs led to the sharpest price rise in a decade, HSBC PMI shows
New Delhi: Though India’s manufacturing activity expanded at a solid pace in July due to continued robust demand, the cost pressures were high as prices charged to clients rose at the steepest rate in over a decade. As a result, the manufacturing activity softened in July due to "slightly" softer increases in new orders and output, a monthly private survey showed on Thursday.
As per the survey, the seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index (PMI) moderated slightly from 58.3 in June to 58.1 in July. In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction. Despite slowing since June, Indian manufacturers reported a substantial increase in new work intakes. “The overall rate of expansion was marked and the second-strongest in over 13 years. Indian manufacturers, however, reported having paid more for coal, leather, packaging, paper, rubber and steel,” the survey said.
“India's headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern,” said Pranjul Bhandari, chief India economist at HSBC.
As there were also reports of strengthening demand from clients based in Asia, Europe, North America and the Middle East, Indian manufacturers experienced a robust increase in international sales during July.
On the price front, buoyant demand also exerted pressure on prices. Input costs rose at one of the quickest rates in nearly two years, which contributed to the steepest increase in selling prices since October 2013. “The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,” Bhandari noted.
As per the central bank, the Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5 per cent in the June meeting as sticky food inflation continues to keep retail inflation high. The next monetary policy announcement is scheduled for August 8.
Going ahead, the survey further noted that the overall level of positive sentiment towards the year-ahead outlook for production was broadly unchanged since June. “The growth is expected to be supported by marketing efforts and new client enquiries,” the survey said.