At 52.6, PMI declines for fourth month in a row; export orders shrink.
India’s manufacturing sector growth hit a 29-month low in August, dragged down by a contraction in new orders for exports, according to the HSBC Purchasing Managers’ Index (PMI).
Notably, exports are one of the few sectors that bucked the declining trend in growth till July, according to official figures.
The PMI, based on a survey of almost 500 private companies, stood at 52.6 points in August from 53.6 points in July. The index, compiled by financial information firm Markit Economics, declined for the fourth month in a row.
PMI at over 50 points implies expansion in manufacturing, while below that number means a contraction. At 50 points, the index means flat growth.
However, it should be noted here that PMI does not always match official figures. For example, PMI showed manufacturing growth at a nine-month low in June this year, whereas official data revealed manufacturing expanded by a whopping 10 per cent compared to 7.9 per cent in the same month last year.
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A statement by Markit Economics attributed the fall in the August index to the contraction in new export business for manufacturers due to softening global economic conditions.
Lief Eskesen, chief economist for India & Asean at HSBC, said, “The main driver of the weaker reading (in manufacturing) was a significant contraction in export orders, which are facing stiff global economic headwinds. In turn, this moderated the sequential growth rate of output and pulled down some of the other sub-indices.”
However, exports, according to official figures, did tremendously well till July. Merchandise exports for July jumped 81.7 per cent to $29 billion. For the first four months, exports rose almost 54 per cent at $108.34 billion.
The commerce ministry is doubtful of the exports growth sustaining its momentum. Commerce secretary Rahul Khullar said from August, the growth may witness a fall.
According to a statement by Markit Economics, manufacturers had to deal with soaring input prices, with the rate of cost inflation the fastest in four months. Output prices continued to rise at a historically marked rate.
“Inflation pressures remain elevated, with input prices accelerating and output prices still trekking up, albeit at a marginally slower pace,” Eskesen said.
The index also reflected weaker expansion of new business, which also led to a decline in the finished goods stock. The backlog in work fell for the first time since March 2010, as pressure on operating capacity subsided.
According to Eskesen, “The numbers suggest moderation rather than a collapse in growth, and they confirm inflation remains the primary policy concern.”
With headline inflation in July standing at 9.22 per cent and food inflation entering double digits, the Reserve Bank of India is widely expected to raise policy rates by 25 basis points later this month.