Nov Manufacturing Improves as Note Ban & GST Impact Fades

India’s manufacturing activity has shrugged off note ban and GST worries as the factory activity quickened in November at the fastest pace since the government’s surprise cash clampdown late last year, indicating that the economy is strengthening in the third quarter.

According to a Markit Economics report,Nikkei India Manufacturing Purchasing Managers Index,a gauge measuring activity in the manufacturing sector surged to 52.6 in November from 50.3 in October, with a reading above 50 signaling expansion.

The upsurge in the headline index was driven by a marked increase in output on account of higher order book volumes and a fall in tax rates under the Goods and Services Tax regime. A new orders sub-index bounced back into expansionary territory to 54.2 in November from 49.9 the month before.

Moreover, stronger factory production levels translated into the fastest rate of employment creation since September 2012. Besides, export growth rose for the first time in three months as overseas demand for Indian goods improved. On the price front, input cost inflation quickened to the fastest since April, but firms were unable to fully pass on higher cost burdens to price-sensitive clients. The findings add to evidence that a recovery in Asia’s third-largest economy is on track.

The manufacturing sector had been hit hard by the government's move to scrap some high-value notes in November last year, while implementation issues linked to the GST had hurt businesses. The sharp cut in GST rates for more than 200 items had also helped boost sentiment in the sector.

Improved manufacturing activity reinforces the revival in India's gross domestic product growth. The recent GDP data showed that the economy reversed five quarters of slowdowns to post 6.3 per cent growth in the July-September quarter compared with a three-year low of 5.7 per cent in the previous quarter.

While there are some weak spots in the manufacturing sector and overall economy, the data however now points that economy seems to have weathered the transitional challenges experienced earlier in the year and appears poised for a durable recovery going forward.

Latin Manharlal