Indian factories end 2021 on strong note despite dip in momentum

·2-min read
Female labourers wearing helmets take a break from laying underground electricity cables in Ahmedabad

By Vivek Mishra

BENGALURU (Reuters) - India's manufacturing sector ended 2021 on a solid footing with growth in new orders and output remaining sharp despite losing some momentum in December, but elevated price pressures were still a concern, a private survey showed.

The Manufacturing Purchasing Managers' Index, compiled and collected by IHS Markit Dec. 6-17, fell to 55.5 in December from November's 57.6 though it stayed above the 50 mark that separates growth from contraction for a sixth month.

The survey results reinforce evidence of a continued recovery in Asia's third-largest economy from the coronavirus pandemic-induced slump. That and rising price pressures may add to expectations the Reserve Bank of India will tighten monetary policy earlier than thought, like some other central banks.

"The last PMI results of 2021 for the Indian manufacturing sector were encouraging, with the economic recovery continuing as firms were successful in securing new work from domestic and international sources," Pollyanna De Lima, economics associate director at IHS Markit, said in a release.

"Higher sales underpinned a further upturn in production and companies carried on with their restocking efforts."

While the latest survey showed the new orders sub-index, a proxy for domestic demand, slipped to 58.4 in December, it remained above the long-term average since the gauge was introduced in March 2005. That encouraged firms to maintain solid output.

Optimism about future output strengthened last month, but concerns about supply-chain disruptions, the rapid spread of the new Omicron variant of coronavirus and inflationary pressures dampened sentiment.

Employment slipped back into contractionary territory last month after growing in November for the first time since July; however, the pace of job shedding was marginal.

Although input costs rose sharply at an above-trend pace, output price inflation eased to a 14-month low as firms did not pass on the burden fully to consumers.

"There were tentative signs that inflationary pressures started to subside, but companies weren't particularly confident that such trend would continue," De Lima added.

"Despite easing in December, input cost inflation was still running at one of its highest rates in around seven-and-a-half years. The vast majority of firms nevertheless decided to keep their selling prices unchanged, in order to boost sales, with overall charges up only marginally in December."

(Reporting by Vivek Mishra; Editing by Shri Navaratnam)

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