India manufacturing growth at 8-month low in July: PMI survey

India's manufacturing activities expanded last month at the slowest pace in eight months, shows the HSBC Purchasing Managers’ Index (PMI).

The index fell sharply to 52.9 points in July against 55 points in June. Before that, PMI was lower in November 2011, when it was at 51 points. A reading above 50 points denotes expansion and below that level is contraction.

One reason given for low PMI is power outages faced by the manufacturing sector (though their national grid collapses of this week weren’t taken into account). Other factors cited by Markit Economics, a financial information firm which compiles the PMI, include moderation in new order inflows and weak global economic conditions that dragged down export orders. New orders continued to rise but at the weakest rate since November, as new export orders fell for the first time since October, credited to the global economic slowdown leading to weaker demand.

Though there was an increase in output during July on the back of of growing new orders, the pace of expansion was, as mentioned, the slowest in eight months.

“Orders decelerated faster than inventory accumulation, suggesting that more moderate expansion in output will continue in the months ahead,” said Leif Eskesen, chief economist for India & Asean at HSBC.

In the previous two months’ survey, too, HSBC had blamed power outages for demand being unmet by supply. The survey said manufacturing firms recruited more labour due to higher production, but the volume of work-in-hand (but not completed) fell moderately. This was the first contraction in backlogs of work recorded since September 2011, the survey reported.

Official India's manufacturing sector has also been reporting subdued numbers this financial year. Manufacturing grew just 0.6 per cent in the first two months of 2012-13, against six per cent in the corresponding months of 2011-12.

Meanwhile, output price inflation has persisted for 35 successive months in the sector, according to PMI, but the rate of increase slowed in July versus the previous month.

Rising output inflation was a reflection of cost price inflation in the form of fuel, labour and raw material costs, along with dollar appreciation.

In its quarterly monetary policy review yesterday, RBI left key interest rates unchanged on fears of a deficient monsoon and high inflation. However, it cut the Statutory Liquidity Ratio by one percentage point, to improve liquidity in the system.