Indian Output Rises at Stronger Rate in September

Michelle Remo, “Big 4″ observer
October 01, 2012 /

Indian output expanded solidly and at a faster rate than August.

Panel members linked the latest increase to stronger demand. Order book volumes increased for the forty-second successive month amid reports of stronger demand, good product quality and increasing marketing.

New export orders increased for the first time since June. The pace of growth was solid. Anecdotal evidence indicated good product quality and stronger demand from international markets had supported the rise in foreign orders.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: “Economic activity in the manufacturing sector held steady supported by faster output growth and rising export orders. However, a rise in inventories may
dampen output growth in coming months. Employment conditions remain strong, although the pace of hiring
eased a bit. The inflation picture was a bit mixed. Output prices rose somewhat less, but input prices rose
at a faster clip on the back of higher raw material and diesel prices. Looking ahead, growth in the
manufacturing sector is likely to remain subdued, although implementation of recently announced reforms
will help facilitate a gradual recovery during the second half of the fiscal year.”

Manufacturing companies in India signalled an increase in purchasing activity during September. Despite posting a three-month high, the rate of growth was below its long-run trend. Almost one quarter of monitored companies signalled an increase in input buying and stated that it was intended to meet current and expected demand.

Consequently, pre-production inventories were accumulated. Although moderate, the rate of expansion was the quickest in six months. Stocks of finished goods increased, marking an 11-month sequence of accumulation. The rate of expansion was solid and broadly in line with June’s 38-month high.

According to manufacturing firms, postproduction inventories were intentionally accumulated as demand is forecast to strengthen. Input prices rose again, as has been the case since April 2009. The rate of inflation was steep and the fastest in three months.

Increasing raw material and diesel prices were cited by panellists as factors behind purchase cost inflation. Additionally, there were mentions of short supplies of inputs. Manufacturers reportedly passed on to their clients the burden of rising costs as charges increased.

Although marked, the pace of inflation was the slowest in six months. Job creation was recorded in September, the seventh successive month of growth recorded. Panellists commented that payroll numbers were increased to
meet stronger demand, with some signalling expansions in marketing departments. Meanwhile, power shortages continued to affect backlogs of work, which rose at a solid pace during the month.


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