Factory output up in April on higher orders, production

Indian manufacturing sector started the current fiscal on a strong note, with PMI manufacturing index rising to 54.7 in April, compared with 54 in March. The growth came on the back of “marked and accelerated expansions in new orders and production,” says IHS Markit, which compiles the Global Indian Manufacturing PMI.

Meanwhile, inflationary pressures intensified on account of rising commodity prices, the Russia-Ukraine war, and higher transportation costs due to skyrocketing fuel prices. Input prices registered the fastest increase in five months, while output charge inflation hit a 12-month high.

“Rising from 54.0 in March to 54.7 in April, the seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) highlighted a solid and faster improvement in operating conditions across the sector. Growth gathered momentum in the intermediate and capital goods segments, but there was a slowdown at consumer goods makers,” the latest manufacturing PMI report says.

A PMI reading of more than 50 indicates expansion in activity, whereas that below 50 shows contraction.

Demand was boosted by receding Covid-19 cases, with marked growth in orders, above trend and faster than that seen in March. In line with the order growth, the rate of factory output also quickened in April and outpaced its long-run average. Production increased for the tenth month in a row, IHS Markit says in its report.

New export orders witnessed revival in April after contracting in March for the first time in nine months. This rate of increase was solid and the strongest since last July, the report adds.

Meanwhile, companies reported a rise in input costs during April “with chemical, electronic component, energy, metal, plastic and textile costs reportedly higher than in March.” Increases were partly attributed to rising transportation fees and the war in Ukraine. The overall rate of inflation strengthened to a five-month high and outpaced its long-run trend.

Companies continued to share these additional cost burdens with consumers in April, as seen in the rise in selling prices, pushing the rate of inflation to its fastest level in one year.

Despite the supplier price hikes, companies purchased additional inputs in April to meet the upsurge in demand. This upturn in input procurement was sharp and most pronounced since November. This contributed to a further increase in input inventories among goods producers. The rate of stock accumulation was sharp and the fastest in four months, the manufacturing PMI report states.

In contrast, the inventory of finished products continued to fall as companies utilised existing stocks to meet delivery schedules. However, post-production inventories decreased at a moderate pace that was the weakest in over three years.

As capacity pressures remained negligible among Indian manufacturers, evidenced by a marginal rise in backlogs, there was only a mild increase in employment during April. Most survey participants for the index reported unchanged workforces in April against March levels, though.

Meanwhile, vendor performance continued to worsen in April, although at a modest pace. Where input delivery delays were reported, the companies surveyed for the index mentioned imbalances between raw material demand and supply.

There was some improvement in business confidence during April even though the overall optimism remained subdued by historical standards. Some firms foresee further improvements in demand and economic conditions, while others noted that the year-ahead outlook was difficult to predict.