Growth in the manufacturing sector fell to -0.2% in the last quarter of the financial year, owing to high input prices, convoluted global supply chains, and Covid-induced mobility restrictions.

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This was the first drop in factory production since the dramatic 31.5% drop in the first quarter of 2020-21, which coincided with stringent nationwide lockdowns.

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Economists noted that real GDP was only ‘a subdued’ 1.5% higher than pre-COVID levels, attributing the lower-than-expected full-year growth to the effects of the COVID-19, high commodity prices and inflation, as well as data revisions for the first half of the year.

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A negative revision in growth rates for the first two quarters of 2021-22 influenced the full-year growth rate in comparison to the most recent projections published on February 28. The previously anticipated 20.3% GDP growth for Q1 was reduced to 20.1%, while the same figure for Q2 was cut to 8.4% from 8.5%.

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According to the Finance Ministry, the economy’s investment rate increased to 33.6% in Q4, the highest since Q3 of 2019-20. Furthermore, while the manufacturing sector fell year on year, it rose sequentially at 14.2% in Q4.

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The rise in interest rates, the unavoidable rise in commodity prices (Brent crude oil has reached $120 per barrel), and the continuance of supply-chain issues will all pose challenges to manufacturing prospects in the current fiscal year.

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According to the latest report by S&P Global India Manufacturing Purchasing Managers’ Index (PMI), Indian manufacturers received about the same number of new orders in May as they did in April, despite raising prices at the highest rate in more than eight and a half years due to a severe rise in input costs.

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“India’s manufacturing sector sustained strong growth momentum in May, as total new orders expanded further, thanks partly to the sharpest rise in international sales for eleven years,” remarked Pollyanna De Lima, economics associate director at S&P Global, noting the firms hired extra workers and rebuilt input stocks in view of resilient demand.

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The index was 54.6 in May, down slightly from 57.4 in March. A reading of more than 50 on the index suggests increased activity. May is the 11th month in a row that India’s manufacturing PMI shows an increase in activity.