With a pick-up in festival demand, the manufacturing sector put up an improved performance in October, private survey data released on Monday showed. The expectation is for the positive trend to continue for some time.

There was good news on the jobs front too.

The results of the survey, better known as the Purchasing Managers’ Index (PMI), rose to 57.5 in October, as against an eight-month low of 56.5 in September. This indicates “a substantial and accelerated improvement in operating conditions,” a report accompanying the survey result, prepared by S&P Global said. The index is based on responses from purchasing managers of 400 companies. An index above 50 shows expansion, while that below 50 means contraction.

“India’s headline manufacturing PMI picked up substantially in October as the economy’s operating conditions continue to improve broadly. Rapidly expanding new orders and international sales reflect strong demand growth for India’s manufacturing sector,” Pranjul Bhandari, Chief India Economist at HSBC, said. Growth in manufacturing is critical as it is considered the biggest job multiplier in India and it also contributes maximum in indirect taxes, especially GST.

Also read: India Sept business growth at nine-month low as demand eases, PMI shows

The report highlighted that not only did manufacturers hire extra staff at the start of the third fiscal quarter, but also to a greater degree than in September. “Around one-in-ten panelists reported an increase in employment, while 1 per cent shed jobs. This supported the first decline in backlogs in over a year,” the report said.

October data signalled stronger inflationary pressures across India’s manufacturing sector. Input price inflation quickened to a three-month high, though it remained below its long-run trend. Meanwhile, output prices increased at a solid rate that outpaced the series trend. “Input and output prices are both increasing as a result of persistent inflationary pressures in materials, labour, and transportation costs,” Bhandari said.

The report said an increased appetite for safety stocks, supported by shorter lead times, was reflected in another substantial rise in pre-production inventories. October’s accumulation was one of the most marked in close to 20 years of data collection. The trend for stocks of finished goods continued to diverge from that of inputs, as firms again utilised inventories to fulfil sales needs. Indian manufacturers became more optimistic regarding future output volumes. Rising since September, the level of positive sentiment was above the average seen over the 13-and-a-half-year series history.

According to Bhandari, to start the third fiscal quarter, business confidence is also very high due to expectations of continued strong consumer demand, new product releases, and sales pending approval.

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