India PMI January 2018

India: Manufacturing PMI eases from five-year high, services PMI rises in January

Operating conditions in India’s manufacturing sector were less upbeat in January from the previous month, with evidence suggesting that the Goods and Services Tax (GST) remains a risk to business performance as firms face delayed payments. The manufacturing Purchasing Managers’ Index (PMI), produced by Nikkei and IHS Markit, eased from December’s five-year high of 54.7 to 52.4 in January. Despite the sequential decline, the index remains above the 50-point threshold that separates expansion from contraction in the manufacturing sector, where it has been since last August.

The slower improvement in manufacturing conditions reflected weaker growth in new domestic orders, which more than offset the highest increase in new export order logs in more than a year. Somewhat softer demand weighed on production levels, growth of which moderated to its weakest since October. Firms also took in less new workers in January on reduced capacity pressure, although backlogs of work continued to mount on the back of delayed payments partially caused by GST disruptions. Resilient demand conditions, however, prompted firms to continue increasing their purchasing activity. On prices, input inflation remained largely steady at December’s eight-month high, while firms continued to roll some of these costs onto consumers.

On a different note, the Nikkei services PMI rose markedly in January after entering positive territory in December. The index rose to 51.7 in January from 50.9 in December, marking the joint-highest figure since June last year. The improvement mainly owed to faster growth in new business inflows, the pace of which was the fastest since last June. GST-related payment delays contributed to an increase in outstanding work, while firms reacted to higher demand and mounting backlogs by increasing their payrolls, with employment growth at the fastest since last September. Regarding prices, both input and output inflation remained moderate in January and largely unchanged from December’s figures.

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