A survey has showed that the Manufacturing Purchasing Managers’ Index (PMI) rose to 52.5 in July as against 52.1 in June. This optimism has come at a time when the performance of eight key industrial sectors, as represented by the core sector data, touched a 50-month low.

This index is prepared on the basis of a survey which was conducted among purchasing executives in over 400 companies. The companies were divided into 8 categories: basic metals, chemicals and plastics, electrical and optical, food and drink, mechanical engineering, textiles clothing, timber and paper, and transport.

An index over 50 implies ‘expansion’, while an index below 50 meant ‘contraction’. The index is prepared by IHS Markit and released along with a detailed report.

Pollyanna de Lima, Principal Economist at IHS Markit, said that following a slowdown in growth during the the opening quarter of FY20, some momentum was regained in July.

The measures for increased factory orders, production and employment have improved in the latest month, although the rates of expansion remained below trend. A similar pattern was evident for business confidence.

Participants of the survey, linked the hike in growth to a rise in demand. This was attributed to successful marketing efforts, competitive pricing and favourable public policies.

General lack of inflationary pressures

The data showed that the domestic market provided the main impetus to sales growth.

International orders increased the least in 15 months as manufacturers started to feel the effects of softer conditions in key destinations for their goods. “The relatively negligible increases in input costs and output charges, signalled by the PMI survey in July, suggest that we will likely see a further reduction in India's benchmark interest rate as the RBI continues its effort to support economic growth," she said.

The report mentioned that economic growth in the manufacturing sector was sustained in July. Companies scaled up production in response to a quicker upturn in factory orders. This, coupled with optimistic growth projections, underpinned job creation and an increase in input purchasing.

As has been the case in 2019 so far, the sector continued to register a general lack of inflationary pressures. Both input costs and output charges increased at marginal rates that were broadly negligible in the context of the historical survey data.

Consumer goods producers led the upturn in July for the third month in a row, though there was also an improvement in business conditions of intermediate goods makers. The capital goods sub-sector dipped into contraction, with lower sales causing reductions in output and quantities of purchases, while job creation came to a halt. Aggregate manufacturing production in India increased in July, as has been observed on a monthly basis for two years. The rate of expansion was below its long-run average, but improved from June.