India's manufacturing growth surged at the quickest pace in three months

A private survey, which also revealed that job creation was at a four-month low, indicated that India's manufacturing growth surged at the quickest pace in three months in August, driven by a significant increase in output and new orders.

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7.8% growth in June Quarter Ending 

This is good news for Asia's third-largest economy, which experienced 7.8% growth in the four months ending in June, slightly higher than the 7.7% projection provided by Reuters, and was anticipated to continue to be a bright spot in the global economy.

Increase in Purchasing Managers' Index

The S&P Global-compiled Manufacturing Purchasing Managers' Index increased to 58.6 last month from 57.7 in July, the highest level since May, defying a Reuter’s poll prediction for a decline to 57.5.

This was the longest period of expansion since lockdowns brought on by a pandemic in March 2020, with 26 months over the 50-point separating growth from contraction.

What is Purchasing Manager's Index?

S&P Global compiles purchasing managers' indexTM (PMITM) data for more than 40 markets throughout the world.  This index is based on surveys of top executives at private sector enterprises. The PMI dataset includes a headline figure that represents an economy's overall health and subindices that offer information on other important economic factors like GDP, inflation, exports, capacity utilisation, employment, and inventories. Financial and business experts use the PMI statistics to better assess the direction of economies and markets and to identify opportunities.

Rapid gain in New Orders and Output Pushed growth

The August manufacturing scene in India was vividly depicted by the PMI figures. Pollyanna De Lima, associate director of economics at S&P Global, believes that the second quarter's (fiscal) economic growth was strongly influenced by substantial and rapid gains in new orders and output.

A strong and speedier growth in overseas sales was indicative of the companies' strategic commitment towards a global orientation. In the upcoming months, he said, export-focused strategies should help guarantee that production stays on an upward trajectory.

Indicators of the strength of the demand, new orders and output, both increased at their quickest rates since January 2021 and October 2020, respectively. For the first time in ten months, export orders increased quickly.

Job growth fell to its lowest point

However, it did not result in a faster creation of jobs. While continuing to be positive for the fifth consecutive month, job growth fell to its lowest point since April.

Due to worries about inflation, business confidence for the upcoming 12 months fell to a three-month low. According to a Reuter’s poll, India's annual retail inflation hit a 15-month high in July and was predicted to continue over the Reserve Bank of India's target range of 2%-6% at least until October.

Trade off Between Inflation and Growth

In August, input costs increased at the fastest rate in a year. Although output prices increased at their slowest rate in four months, not all of these costs were ultimately passed on to customers. Stronger cost inflationary pressures serve as a reminder of the difficulties in controlling growth, and the necessity to preserve competitiveness helped limit charge inflation, according to De Lima.