The flame of blow torch heats a gold strip at a P.N. Gadgil Jewellers Pvt. workshop in Pune, India. (Photographer: Dhiraj Singh/Bloomberg)

India’s Manufacturing Activity Bounces Back From July’s Contraction

India’s manufacturing output expanded in August after hitting its lowest level in more than eight years in the previous month, as producers recovered from the slowdown triggered by the rollout of Goods and Services Tax.

This comes a day after data showed that India’s gross domestic product grew 5.7 percent in the quarter ended June – its lowest since 2014.

The Nikkei India Manufacturing Purchasing Managers’ Index—compiled by Nikkei and research firm Markit—stood at 51.2, compared to 47.9 in July, according to the press release. A reading below 50 indicates a contraction and a number above it indicates expansion.

India’s Manufacturing Activity Bounces Back From July’s Contraction

The turnaround, though modest, was also based on new orders. Companies responded to the improved environment by adding jobs and purchasing raw materials and semi-finished items, the report said.

All sub-sectors posted substantial recoveries, with capital goods outperforming its consumer and intermediate goods counterparts regarding growth rates for production.
Pollyanna De Lima, Principal Economist, IHS Markit

The rebound indicates that manufacturers and suppliers have become more aware of GST rates and gained the confidence to expand business.

Input price inflation, which was the weakest in a year after GST implementation, meant that some raw materials became cheaper. "The picture for inflation is bright for producers and consumers," De Lima of IHS Markit said.

Other Key Highlights

  • Order book volumes increased in August after its worst performance last month.
  • New export business grew in August, but at the slowest pace in three months.
  • New orders led to an overall rise in production.
  • Higher production and workload created more jobs, with manufacturers hiring extra staff at the fastest pace since March 2013.
  • Output prices rose but at a negligible rate by historical standards.