Manufacturing growth continued to improve, albeit at a slower pace

The manufacturing activity, as measured by the PMI index, continued to report healthy growth. The manufacturers
indicated that sequential improvement in demand and a pick-up in bulk orders were the key factors underpinning the robustness in manufacturing sector. The headline index numbers fell to a seven-month low of 55.4 in the month of March from 57.5 level reported for the month of February. A reading above 50 indicates expansion. Even as the index number has contracted on month-on-month basis, it remains well above the long-term average, indicative of further improvement in operating conditions. The export orders too increased in the month of March, thereby extending the streak of expanding export orders to seven months. The input buying remained steady as manufacturers lifted safety stocks and to support production requirements.

While the demand conditions remained supportive, the key headwinds that have been gaining strength over the recent past are increasing cost pressures and the resurgence of the pandemic. The firmness in prices of input materials are impacting the margins, as manufacturers are reluctant to pass-on the cost burden owing to competitive pressures. The firmness in prices is also impacting the level of input buying. The manufacturers reported heightened cost pressures for chemicals, metal, plastic, rubber and textile prices. The inflation rates have remained mostly stable till now owing to producers aiming to protect demand.

Outlook: The manufacturing sector and also the overall economic growth recovered in response to the gradual
relaxation of lockdowns and the various stimulus measures. As the financial year came to a close, the COVID-19 infections again have started surging and the authorities have been compelled to once again deploy the same strategy of restricting population movement and impose localised lockdowns. The near-term outlook would be mostly governed by the developments surrounding the spread of the pandemic and the official response. The ray of hope, this time around as compared to the last year is the availability of vaccine. If the distribution of vaccine is swift and is able to control the spike in cases, the impact on the demand may be short lived as compared to the dent seen during the first wave.


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