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India’s factory activity grows for first time in five months in August

Manufacturing activity in India grew in August for the first time in five months led by a rebound in domestic demand

as lockdown restrictions eased though firms continued to cut jobs, a private survey showed on Tuesday.

The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI)

rose to 52 in August from 46 in July, above the 50-level reading that separates growth from contraction.

Official data released Monday showed that India’s gross domestic product (GDP) contracted 23.9% in the June quarter from a year ago because of the Covid-19 pandemic and the lockdown that followed. Manufacturing shrank 39.3% in the quarter.

“August data highlighted positive developments in the health of the Indian manufacturing sector, signalling moves towards a recovery from the second quarter downturn. The pick-up in demand from domestic markets gave rise to upturns in production and input buying,” said Shreeya Patel, Economist at IHS Markit.

As per the survey report, for the first time since March, output expanded in the Indian manufacturing sector in August. Production growth was largely driven by greater client demand for Indian goods following the resumption of business operations.

“However, not all was positive in August, delivery times lengthened to another marked rate amid ongoing Covid-19 disruption,” Patel said.

The decline in foreign exports weighed slightly on overall new orders as firms cited subdued demand conditions from abroad. That said, new business received by Indian manufacturers expanded at the fastest pace since February.

Jobs, sentiment

Meanwhile, employment continued to fall despite signs of capacity pressures, as firms struggled to find suitable workers.

“Despite an expansion in new orders, job shedding continued in the Indian manufacturing sector,” IHS said, adding that the relocation of employees following Covid-19 was often linked to the reduction in staffing numbers. The pace of contraction in workforce numbers softened from that seen in July but remained strong overall.

Looking ahead, Indian manufacturers remained optimistic for the next 12 months. Positive sentiment was often attributed to hope of the passing of Covid-19 pandemic, improving client demand, and new business wins. Nevertheless market uncertainty and the onset of a global recession weighed slightly on the degree of confidence which was below the series average in August.

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