Manufacturing PMI hits 31-month high in May, helped by demand and output

India’s manufacturing activity in May increased to a 31-month high of 58.7 from 57.2 in April, driven by record expansion in input stocks and a strong increase in new orders and output, said a private survey on Thursday.

“India’s manufacturing PMI (purchasing managers’ index) showcased encouraging developments in May, painting a notably positive picture for the sector. Demand conditions demonstrated remarkable strength, with factory orders rising at the fastest pace since January 2021,” said the survey by S&P Global.

A survey print above 50 indicates manufacturing expansion and below marks contraction. In October 2020, PMI for manufacturing was recorded at 58.9.

The May data pointed to a consecutive 23-month rise in factory orders, with firms associating the upturn with advertising, demand strength and favourable economic climate.

The survey noted that out of the five PMI sub-components, stocks of purchases showed vigour, increasing at an unprecedented pace in May as monitored companies indicated that better supply-chain conditions and sustained increases in input purchasing boosted inventory growth.

“May data indicated a sharp and accelerated increase in quantities of purchases, with the rate of expansion quickening to the strongest in over 12 years. According to survey members, ongoing increases in new business and efforts to replenish stocks underpinned growth of buying levels. Exports gave impetus to total new orders in May. Companies registered the quickest expansion in international sales for six months,” it said.

Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, said that the PMI’s spotlight on soaring sales showcases robust demand for Indian-made products both domestically and internationally.

“While the upturn in domestic orders strengthens the foundations of the economy, rising external business fosters international partnerships and boosts India’s position in the global market. Combined, they also generated more employment opportunities in May,” she said.

The survey noted that the rising inflows of new business exerted pressure on the capacity of goods producers, supporting job creation midway through the first fiscal quarter. The rate of employment growth improved to a six-month high.

Smoother logistics aided a softer increase in input prices during May as average cost burdens rose at a moderate rate that was well below its long-run average, the survey said.

“In contrast to the trend for input costs, selling prices rose at a solid and quicker rate in May. The rate of inflation accelerated to a one-year high. According to panelists, sustained increases in input costs and a supportive demand environment led them to lift their charges,” it noted.

“While improvements in supply chains and generally subdued global demand for inputs helped curb input price inflation in May, heightened demand and previously absorbed cost burdens translated into a stronger upward revision to selling charges. Demand-driven inflation is not inherently negative, but could erode purchasing power, create challenges for the economy and open the door for more interest rate hikes,” De Lima added.

The record expansion in manufacturing PMI came a day later when India’s economic growth shot up by 6.1 per cent in the March quarter of FY23, as the expansion in manufacturing and construction reflected sustained strength in domestic demand amid a gloomy global outlook.

Data released by the National Statistical Office (NSO) on Wednesday showed that after contracting for two consecutive quarters, the manufacturing sector rebounded to grow at 4.5 per cent in the March quarter due to an improvement in margins during the three-month period, partly on account of a sustained moderation in input costs.