After two consecutive months of decline, the manufacturing sector output rose in March amid stronger increase in new orders that led firms to boost production levels, but payroll levels remained unchanged.
The headline HSBC India Purchasing Managers’ Index (PMI), compiled by Markit, improved from 51.2 in February to 52.1 in March.
A figure above 50 indicates that the sector is expanding, while a figure below that level means contraction.
“Momentum is building in manufacturing as the sector begins to build up a head of steam. Stronger expansions of output, new orders and stocks of purchases all contributed to a higher PMI reading in March,” Pollyanna De Lima, Economist at Markit said.
On employment levels, HSBC said that after registering a fall in February, manufacturing employment stabilised during March.
“Employment stabilised during March and has showed little change over the past 14 months; a signal that hesitation still prevails among firms,” Lima said.
Notwithstanding the overall improvement in manufacturing sector, payroll numbers were unchanged over the month as an increase in average cost burdens deterred firms from hiring additional workers in March.
Going forward, the subdued labour market is likely to recover on faster increases in incoming new work, buying levels and backlogs.
Meanwhile, March saw a return of inflationary pressures across India’s manufacturing economy.
“Of concern was a marked rise in input costs, which has resulted in firms raising their tariffs once again. Greater cost burdens add to the pressure on margins which could potentially be squeezed by competitive pressures,” Lima added.
The PMI is a composite gauge designed to give a single figure snapshot of manufacturing business conditions.
Meanwhile, inflation measured on wholesale price index (WPI) was at (-) 0.39 per cent in January, (-) 0.50 per cent in December and (-) 0.17 per cent in November, respectively.
With inflation dropping to record lows, industry is demanding further easing of interest rates to boost growth.
Last month, the Reserve Bank had surprised markets by reducing the benchmark interest rate by 0.25 per cent to 7.5 per cent.
The rate cut in March was the second time in two months that the RBI had cut interest rates outside the regular policy reviews. Earlier on January 15, it had cut the repo rate by 0.25 per cent to 7.75 per cent.
