Manufacturing PMI rises for 2nd straight month in February

India’s factory activity expanded for a second straight month in February, while an increase in raw material costs pushed firms to raise prices at the fastest rate in nearly three and a half years, the Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) survey has said. The PMI Index, compiled by IHS Markit, rose to 50.7 in February from 50.4 in January. A reading above 50 indicates expansion while any score below the mark means contraction. The increase in prices, which was fastest in nearly three-and-a-half years and was triggered by higher raw material costs, also spoiled the case for any immediate interest rate cut by the Reserve Bank of India and supported the recent shift in its monetary policy stance from ‘accommodative’ to ‘neutral’.

The modest expansion in factory output was largely driven by a rebound in export demand. However, the job scenario turned sluggish and the business confidence among manufacturers was subdued, the survey said. February is the second straight month of expansion for the manufacturing after the demonetisation-induced contraction at the end of 2016. “Indian manufacturers benefited from recovering demand and raised production volumes in response to another expansion in inflows of new work,” said Pollyanna De Lima, economist at IHS Markit and author of the report. On the prices front, the survey said input and output price inflation quickened.

“Of concern, higher commodity prices resulted in increased cost burden facing manufacturers. The sharp rate of inflation seen in February was the most pronounced in two-and-a-half years and led factory charges to be raised at the quickest pace in 40 months,” Lima said. However, the latest PMI reading was much weaker than the long-run series average (54.2), reflecting sub-par growth for output and new business. “However, with growth rates well below-par, the sector still has many areas to develop before it can fire on all cylinders,” Lima said.