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January 23, 2018
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Factory activity quickens in December: PMI‘Survey reading of 54.7 shows fastest pace of expansion in five years; GST pushes up raw material costs’

Manufacturing activity quickened to the fastest pace in five years in December, bolstered by a sharp rise in output and new orders, according to a private sector survey.

The Nikkei India Puchasing Managers’ Index registered a value of 54.7 in December, compared with 52.6 in November. A value over 50 indicates an expansion while one below 50 denotes a contraction.

“The Indian manufacturing sector ended the year on a strong note, with operating conditions improving at the strongest rate in five years,” IHS Markit said in the report. “The overall upturn was supported by the sharpest increase in output and new orders since December 2012 and October 2016 respectively.” In response to the improved inflows of new business, job creation quickened to the strongest since August 2012, according to the report. “This was consistent with the strongest improvement in the health of the sector since December 2012. Notably, the PMI reading was slightly stronger than the average (54.0) recorded since the inception of the survey in March 2005.”

At the broad market group level, growth was seen across all three monitored categories (consumer, intermediate and investment). Higher order book volumes and improved underlying demand conditions reportedly contributed to greater production, IHS Markit said.

‘Input cost inflation’

“However, the sector continues to face some turbulence as delayed customer payments contributed to greater volumes of outstanding work,” Aashna Dodhia, Economist at IHS Markit and author of the report said. “On the price front, July’s Goods and Services Tax (GST) continued to lead to greater raw material costs, with input cost inflation accelerating to the sharpest since April.”

Ms. Dodhia said firms were restricted in their ability to pass on higher costs to clients, which added upward pressure on margins.

“Challenges remain as the economy adjusts to recent shocks, but the overall upturn was robust compared to the trend observed for the survey history,” Ms. Dodhia said. “This outlook was shared by the manufacturing community as sentiment picked up to the strongest in three months amid expected improvements in market conditions over the next 12 months,” she added.