Manufacturing indices indicate continued growth after unlock

ANALYSTS ARE CONCERNED OVER GROWTH LOSING TAILWINDS ONCE RESIDUAL DEMAND DISSIPATES

NEW DELHI: The Nomura India Business Resumption Index (NIBRI) continued to rise, and while the Purchasing Managers’ Index (PMI) for manufacturing lost some momentum from the previous month, it remains very high compared to historical levels—indicating that the Indian economy continues to recover from the lows seen during the lockdown in April and May and the months that followed.

NIBRI, a measure of activities compared to pre-pandemic levels, reached an all-time high of 89.2 in the week ending November 29, only 11 percentage points lower than pre-lockdown levels. PMI (manufacturing) dipped from 58.9 to 56.3 between October and November. A PMI value above 50 signals expansion in economic activity over the previous month (which means the numbers indicate a continued expansion). Services PMI is released a couple of days after the manufacturing numbers.

The big question raised by many analysts is whether the ongoing recovery in the Indian economy will lose some of its momentum as the tailwinds from post-lockdown pent-up demand and festive season end? It’s tough to answer that from the data released Tuesday.

Another piece of data available on Tuesday, car shipments to dealers from companies showed a year-on-year increase in November, but a dip from October. To be sure, some of this is also attributable to the base effect; car sales shrank by 3.9% in November 2019. PMI manufacturing fell sharply in April this year to 27.4, a result of the nation-wide lockdown imposed on March 25 It returned to expansion zone only in the month of August. The November PMI manufacturing value is the lowest since September. To be sure, the fine print for both these indices conveys more than the headline numbers.

NIBRI has increased despite week on week declines in the Apple Driving Index and Google’s retail and recreation mobility index (the first in eight weeks). The latter could be an outcome of the festive season getting over. A research note by Nomura economists Sonal Varma and Aurodeep Nandi attributes the better performance in November to “residual festive mobility and demand”.

While NIBRI recorded an improvement in labour participation rate in the last week of November after falling through most of the month, PMI numbers continue to report a drop in payroll numbers, “with companies reportedly keeping the minimum possible number of workers as per government guidelines”, according to a press release by IHS Markit, the agency which conducts the survey. Nomura revised its growth forecast for India, expecting it to contract by 8.2% in 2020-21, from the earlier figure of 10.8%.

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