India's manufacturing activity grew at the strongest pace since December 2012, showing signs of recovery after the twin shocks of demonetisation and the implementation of the Goods and Services Tax (GST).
The Nikkei India Manufacturing Purchasing Managers' Index rose to 54.7 in December compared to 52.6 in November, according to a statement by IHS Markit, which compiles the index. A reading below 50 indicates contraction and a number above it signals expansion. India's manufacturing PMI has remained in expansion zone for most of this fiscal, with the exception of a contraction reported in July.
In December, the rise in manufacturing activity was driven by a sharp uptick in output and new orders. Output rose at its fastest pace since December 2012, while new orders increased at their quickest since October 2016. Demand conditions improved in both domestic and international markets.
Job creation also increased at the quickest pace since more than five years in response to the growing business activity, the release said.
Challenges remain as the economy adjusts to recent shocks, but the overall upturn was robust compared to the trend observed for the survey history. This outlook was shared by the manufacturing community as sentiment picked-up to the strongest in three months amid expected improvements in market conditions over the next 12 months.Aashna Dodhia, Economist, IHSMarkit
The strong pick-up in manufacturing activity comes at the close of a turbulent year for the Indian economy. The impact of demonetisation and the GST has led to volatility across business segments. Even now, “the sector continues to face some turbulence as delayed customer payments contributed to greater volumes of outstanding work,” Dodhia wrote in the press statement accompanying the data release.
Other economic indicators have also suggested some revival of strength in industry, albeit on a low base. Growth in the eight core sectors rose to 6.8 percent in November compared to 3.2 percent in November last year.
As growth is picking up, price pressures are also starting to rise.
Input cost inflation accelerated to the strongest since April, said IHS Markit. Firms raised their output charges for the fifth month straight. However, despite a 10-month high, inflation was modest and weaker than the long-run series average, the report noted.
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