BENGALURU, (Reuters) – India’s manufacturing activity increased last month due to a rebound in the economy following the pandemic-induced slump. However, firms have reduced their headcount sharply since May.

This recovery could continue at most for a few more months with the support of ultra-easy monetary policy and continuous fiscalspending.

An increase in the Reserve Bank of India’s key interest rates looks unlikely until the next fiscal year. The Indian government stated earlier this week that it will continue with its borrowing-backed spending efforts to revitalize the economy.

IHS Markit’s Manufacturing purchasing managers’ index rose to 53.7 inSeptember from 52.3 inAugust. It remained at the top of the 50-level for separating contraction from growth, which is the third consecutive month.

PollyannaDe Lima, IHS Markit economics associate director, stated that Indian producers increased their production significantly in September due to improved demand.

The increase in new work intakes was significant, with some contributions from the international markets.

Both domestic and international demand improved faster in September. Factory output rose at an even quicker rate than August due to the increased pace of new orders.

But that didn’t encourage factories to increase their labour force – which was a necessary step in order to strengthen weak labour markets – so they cut their workforce at the fastest pace possible, in only four months.

According to De Lima, “Companies purchased more inputs during September but jobs did not change much over that month.” In some instances,survey participants indicated that government guidelinessurrounding shift work prevented hiring,” added De Lima.

While input cost inflation had been declining in the second quarter of lastquarter, it rose to a 5-month high partly because of rising fuel prices, transport costs and supply chain disruptions.

However, output prices rose at a slower pace than expected. This indicates that firms were unable to pass along the additional costs tocustomers.

However, there was a slight improvement in optimism for the year ahead due to an easing of restrictions on pandemic mobility. This raised hopes that demand will continue to improve.