04 Jan , 2022 By : Kanchan Joshi
Business activity in India’s manufacturing sector lost some steam in December. IHS Markit’s latest data showed that the seasonally adjusted Purchasing Managers’ Index (PMI) slipped from November’s 10-month high of 57.6 to 55.5 in December. A reading above 50 indicates expansion and below that threshold points to contraction.
According to the survey report, the latest quarterly reading at 56.3 was its highest since the final quarter of fiscal year 2021.
Even so, there are near-term headwinds.
The ongoing supply chain disruption, a potential third wave of covid, and input cost inflation pose challenges.
In fact, the PMI data shows that Indian manufacturers continue to see an increase in overall cost pressures. “Companies reported higher prices paid for a wide range of items, including chemicals, foodstuff, electronic components, and textiles," said the survey report. Further, the report noted that although companies raised prices to pass on the burden of increased costs, the sub-index measuring output charges rose only marginally in December, recording the weakest rise since October 2020.
“Producers have been restrained in passing on cost push pressures to consumers because of the presence of excess capacity and continued covid-19 related uncertainty. Growth recovery has been uneven with the services sector lagging the recovery in goods. We expect this to change as recovery in services gains momentum. This is likely to translate into higher services inflation and producers will gradually pass on higher input costs to consumers as recovery continues," said Gaura Sengupta, India economist at IDFC First Bank.
The significant jump in raw material prices over the past one year makes it tough for manufacturers to pass on the entire increase in costs to consumers. As Teresa John, economist at Nirmal Bang Institutional Equities said, “At this point of time, consumers are still price-sensitive; hence, pricing power is missing, so margins would remain under pressure for some more time." She added that given the lingering uncertainty around covid variants and the damage to incomes and savings, particularly in the informal sector, manufacturers are reluctant to take massive hikes to avoid an impact on volumes.
As such, this ongoing battle with cost inflation continues to cloud the manufacturing sector’s business outlook. The PMI survey report pointed out that the overall degree of optimism among manufacturers in December remained below its long-run average, despite improving from a 17-month low in November.
0 Comment