Manufacturing sector growth steadied in May despite high inflation

India's manufacturing sector growth steadied in May, with new orders and production increasing at similar rates to those registered in the previous month, while demand showed signs of resilience and improved further in spite of another uptick in selling prices, a monthly survey said on Wednesday.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) stood at 54.6 in May, little changed from 54.7 in April, pointing to a sustained recovery across the sector.

The May PMI data pointed to an improvement in overall operating conditions for the eleventh straight month.

In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

"India's manufacturing sector sustained strong growth momentum in May.

"Thanks in part to the sharpest rise in international sales for eleven years, total new orders expanded further. In response to demand resilience, companies continued with their efforts to rebuild stocks and hired extra workers accordingly," said Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence.

Amid reports of new business gains, sustained improvements in demand and looser COVID-19 restrictions, manufacturers continued to scale up production in May.

"The rate of growth was marked, above trend and broadly in line with that recorded in April," the survey said.

The May PMI data also highlighted a notable uptick in growth of new export orders.

The rate of expansion was sharp and the fastest since April 2011.

On the employment front, manufacturing sector jobs rose further in May, owing to ongoing improvements in sales.

Although only slight, the rate of employment growth picked up to the strongest since January 2020.

On the price front, input costs rose for the 22nd successive month in May, with companies reporting higher prices for electronic components, energy, freight, foodstuff, metals and textiles.

Although softer than in April, the rate of inflation remained historically elevated.

"There was little-movement in the rate of input price inflation during May, which remains historically high, but output charge inflation surged to its highest in over eight-and-a-half years as companies continued to transfer additional cost burdens to their clients," Lima said.

The survey further said that business sentiment was dampened by inflation concerns in May, with the overall level of confidence the second-lowest in just over two years.

"While around 9 per cent of panellists forecast output growth over the coming 12 months, 88 per cent foresee no change from present levels," the survey said.

High inflation had led to the Reserve Bank raising the benchmark interest rate by 40 basis points in an unscheduled review in May.

It is expected to take similar measures when the Monetary Policy Committee meets for the bimonthly review on June 8.

According to official data, India's economy grew by 4.1 per cent in the fourth quarter of 2021-22, pushing up the annual growth rate to 8.7 per cent.