Laborers work on a production line at the Aqualite footwear factory in Bahadurgarh in the northern Indian state of Haryana in May 2020, after the government eased a nationwide Covid-19 lockdown. Photo: AFP

India’s manufacturing sector is showing signs of a steady recovery after being one of the worst hit when the country endured a two-month long lockdown from March 25 to contain the spread of Covid-19.

The IHS Markit Manufacturing Purchasing Managers Index survey, which tracks sentiment in the sector, inched up to 56.4 in December 2020 from 56.3 in November. A reading of above 50 denotes growth, and this is the fifth straight month of improvement, with October hitting a decade-high of 58.9. From April to July it was below 50 and the lowest was in April (27.4), when all manufacturing activity had come to a standstill due to the lockdown.

The report noted that manufacturers have stepped up production and input buying as they look to rebuild their inventories following business closures during the lockdown. “While firms were able to lift input stocks, and did so at the quickest rate in nearly a decade, holdings of finished goods decreased sharply due to ongoing increases in new work,” it added.

“The latest PMI results for the Indian manufacturing sector continued to point to an economy on the mend, as a supportive demand environment and firms’ efforts to rebuild safety stocks underpinned another sharp rise in production,” noted Pollyanna De Lima, economics associate director at IHS Markit.

However, employment generation remained low in December as firms continued to reduce headcounts. “Once again, the survey brought the bad news of falling employment. However, the trend for jobs is at least moving in the right direction as the rate of contraction softened to the weakest in the current nine-month period of reduction,” Lima said.

Optimism about the next 12 months declined to a four-month low in December amid growing concerns over rising price pressures. Some of the firms surveyed also expressed concerns over the lasting effect of the Covid-19 pandemic on the global economy.

IHS Markit compiles the manufacturing index based on the responses to questionnaires it sends to purchasing managers for a panel of about 400 manufacturers. The panel is classified on the basis of sector, workforce size and contributions to GDP.

India is facing its first technical recession following an economic contraction for the second consecutive quarter. In the latest quarter the gross domestic product contracted 7.5%, while in the previous quarter it had shrunk a record 23.9%. Almost all rating agencies concede that the country will face an annual contraction.