A worker makes a metal filter plate inside an industrial manufacturing unit on the outskirts of Ahmedabad.
| Photo Credit: Reuters

Growth in new orders and output eased slightly at Indian factories during July, even as firms raised selling prices at the highest pace in almost 11 years amid a significant spike in input costs that accelerated at a two-year high rate, as per the HSBC India Manufacturing Purchasing Managers’ Index (PMI).

The seasonally adjusted PMI inched down from 58.3 in June to 58.1 in July. A reading of over 50 on the index signals a rise in activity levels.

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“The continuous increase in the output price index, driven by input and labour cost pressure, may signal further inflationary pressure in the economy,” averred HSBC chief India economist Pranjul Bhandari.

International sales grew at the second-fastest clip in over 13 years, with firms among the 400 entities surveyed for the index reporting stronger demand from clients in Asia, Europe, North America and the Middle Ease.

About 7% of surveyed firms reported an uptick in hiring, with both permanent and short-term hires taken on board, but 92% reported no change in staff head count. The pace of job creation dropped below June’s levels although this was still one of the strongest increases in hiring levels in the survey’s history, said S&P Global Market Intelligence, the firm that compiles the PMI.

Apart from a rise in costs of inputs like coal, leather, packaging, paper, rubber and steel, manufacturing firms also reported higher labour costs and strong demand as factors for raising output charges. At the same time, with new orders continuing to show robust growth, goods producers piled up on inputs in July, with a quarter of the surveyed firms reporting higher input stocking than June.

Despite key metrics’ persistent resilience, the overall level of positive sentiment towards the year-ahead outlook for production was broadly unchanged since June, when it had slipped to a three-month low. About 29% of firms had said they expected output to grow over the year ahead in June. The latest survey is silent on what this proportion was in July.

“India’s headline manufacturing PMI showed a marginal slowdown in the pace of expansion in July, but with most components remaining at robust levels, the small drop is no cause for concern,” Ms. Bhandari noted.