MUMBAI: India is now the global hotspot of covid infections. So, the modest improvement in the country’s manufacturing business activity in April hardly brings any cheer. IHS Markit data showed purchasing managers’ index (PMI) for April rose marginally to 55.5 from seven-month low of 55.4 in March. A reading above 50 indicates expansion, while below this threshold points to contraction.
For the ninth month in a row, the headline manufacturing PMI has managed to stay in the expansion zone. But economists caution that this momentum could fast fade considering the way infections are rising in the country. “Note that the surveys are conducted in the middle two weeks of the month. The April reading will therefore not have captured the latest jump in infections – India became the first country in the world to report more than 400,000 cases in a single day on Saturday – and the further ramping up of containment measures,” said economists at Capital Economics Ltd.
It should be noted that three states which are key manufacturing hubs–Maharashtra, Gujarat, and Tamil Nadu–have extended restrictions until the middle of May. Given the shortage of oxygen supply, the government has redirected supplies away from some factories to hospitals. Simply put, tighter restrictions and voluntary social distancing, would impact income and consequently demand.
Another worry for manufacturers has been the steady escalation in commodity prices. The PMI survey report said goods producers noted the steepest rise in input prices since mid-2014. “Anecdotal evidence highlighted higher chemical, energy, metal, plastic and transportation costs. As a result, factory gate charges increased further. The rate of inflation was sharp and the fastest seen for seven-and-a-half years,” added the report.
Going by the World Bank’s latest commodity price forecast, most commodities are poised for a bull run this year, with prices surging higher than pre-pandemic levels seen in 2019. Last month, the Reserve Bank of India acknowledged that a combination of rising logistics costs and global commodity prices could push input costs higher for manufacturers. The central bank revised its retail inflation target for the first half of FY22 higher to 5.2%.
“Although the central bank is recognizing inflation fears, the actual impact could be higher than anticipated if commodity prices continue to inch-up. Manufacturers are already grappling with financial stress. We should brace for disappointing PMI readings not only the headline number, but even input costs and business confidence,” said an economist with a domestic research house requesting anonymity.
Of course, increased pace of vaccinations could be one way out of this crisis. But amid supply challenges, quickly inoculating India’s huge population is easier said than done. “Daily vaccinations are slowing as vaccine supplies are choked. They dropped from 1992 per million in the week prior, to 1585 per million on average, in the week ending May 02. This is the third straight week that daily vaccinations have declined. Cumulatively, India has administered 15.4 crore doses,” said a CRISIL Research report dated 3 May.