Growth Engines: Manufacturing
And Service Sectors Leading From The FrontAn Indian factory. Photo credit: MANPREET ROMANA/AFP/GettyImages

The Nikkei India Composite Purchasing Managers' Index (PMI), a measure of activity in the country’s manufacturing and services sectors, reached its highest level in nearly four years. According to the index, activity stood at 55.4 in October, compared to 52.4 in September. A PMI reading of 50 or higher generally indicates that the industry is expanding.

Growth Engines: Manufacturing
And Service Sectors Leading From The Front

The growth indicates that private sector performance is improving, as was widely expected with the good monsoons and an uptick in consumption.

According to the Nikkei India report, an increase in incoming business helped Indian companies in scaling up activity during the month of October. Input costs increased again, although at a marginal rate that was softer than in September. Data collected between 12 and 27 October indicates that an increase in activity placed pressure on firms’ capacity as backlogs of work rose further, but employment levels were unchanged over the month. Unfinished business backlog in the services sector rose for the fifth consecutive month. A similar trend was seen in the manufacturing sector, where the outstanding business rose drastically.

The increasing backlog in these sectors points towards the lack of capacity and investment. The employment levels in service and manufacturing sectors remained stagnant, establishing the fact that marginal growth has failed to generate employment opportunities.

Key Points:

  1. PMI reached a 22-month high in the month of October.
  2. New orders, purchasing activity and output increased sharply.
  3. Input cost rose at the fastest rate since August 2014.

Commenting on the Indian Services PMI survey data, Pollyanna De Lima, economist at IHS Markit, said:

The service sector joined its manufacturing counterpart in offering a more upbeat level of performance this month, providing reassurance in the sustainability of upturn of India’s economy. Incoming new work was the main driver of output growth, with survey respondents highlighting strong demand and improved market conditions.
One underlying concern is the sustained stagnant trend in workforce, with both manufacturers and service providers showing some reluctance to hire. Hopefully, the added pressure on capacity shown in the PMI surveys will translate into job creation as we move towards the end of 2016.

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