Factory activity in India grew at its fastest pace in eight months in July, driven by solid growth in new orders and output, a private survey showed, as demand continued to improve as price pressure eased.
The survey results suggest that the economy remains resilient, at least for now, despite concerns over rising interest rates, massive capital outflows, a weak rupee and a rapidly slowing global economy.
The Manufacturing Purchasing Managers’ Index, compiled by S&P Global, rose to 56.4 in July from 53.9 in June, remaining above the 50-level separating growth from contraction for the thirteenth month.
While both new orders and output grew at their fastest pace since November, both input and output prices grew at their slowest rate in several months to further boost demand.
“The Indian manufacturing industry recorded a welcome combination of rapid economic growth and moderation in inflation during July,” said Polyana de Lima, economics associate director at S&P Global Market Intelligence.
“With the reduction in shortage events, input cost inflation fell to an 11-month low in July, with the rate of increase in output prices subsequently becoming the weakest in four months.”
If this translates into overall price pressures, which have already shown signs of easing amid moderation in commodity and food prices, it could provide some relief for the Reserve Bank of India.
The RBI, which has hiked its key interest rate by a cumulative 90 basis points since early May, is expected to raise it again this week.
The International Monetary Fund recently slashed India’s growth projections for 2022 and 2023 to 7.4% and 6.1% respectively, amid downside risks from a slowing world economy from 8.2% and 6.9% in April.
The survey by S&P Global also showed overseas demand expanded at the weakest pace in four months in July and optimism improved only slightly in the previous month.
Firms increased workforce at the slowest pace in three months.
“While the uptick in demand strengthened, there were clear indications that capacity pressure remained mild as backlogs grew only marginally and job creation remained low,” De Lima said.