Growth in factory activity in India after five months

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The easing of lockdown restrictions and the resulting rebound of domestic demand has led to growth in factory activity in August after five months.

A private business survey showed on Tuesday that the factory activity has increased after five months even though firms continued to cut jobs. The Nikkei Manufacturing Purchasing Managers’ Index rose to 52.0 in August from 46.0 in July. The index is maintained by IHS Markit.

The bounce, however, is unlikely to be a signal for a quick turnaround for the Indian Economy, which contracted at its steepest phase on record of 23.9 percent annually last quarter. A Reuters poll on Friday showed that it is likely to stay in recession this year. The Nikkei Manufacturing Purchasing Managers’ Index, which is compiled by IHS Markit rose for the first time since March to 52.0 in August from 46.0 in July, which is above the 50-level separating the growth from contraction.

According to Shreeya Patel, who is an economist at IHS Markit, The data from August signals a move towards recovery from the second quarter downturn. The data also highlights the positive developments in the health of the Indian Manufacturing Sector.

The sub-indexes which track the overall demand and output reached the highest levels since February and expanded for the first time for six months, whereas, for the sixth time in a row, the foreign demand contracted, which is the longest downturn since March 2009.

The firms are also cutting their workforce for the fifth straight month, which is adding to the millions who have already lost their jobs due to the financial crisis which is induced by COVID-19 disease which is spreading at a faster pace in India than anywhere else in the world.

The firms have cut the prices of their goods for four months to boost demand even though the prices of input goods rose at the sharpest pace in nearly two years.

The price-cutting measures of the firms are unlikely to eas the overall inflation pressure, which remained above the Reserve Bank of India`s medium-term target of 4 percent since September 2019.

According to a Reuters survey, RBI will cut its key rate by 25 basis points next quarter to 3.75 percent and then pause until at least early 2022.

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