India witnessed an increase in demand, but even then the growth in the manufacturing sector slowed to the lowest in three months because of bottlenecks like power cuts and raw material shortage, the HSBC purchasing managers’ index (PMI) showed on Monday.
The PMI stood at 54.7 points in March versus 56.6 points in February, due to weakening new order growth and output due to capacity constraints. The January PMI stood at 57.5.
Even so, given the global context of a slowdown in economies, India’s manufacturing PMI still seemed robust. For example, China struggled to push up its manufacturing to positive growth. Its PMI stood at 48.3 points in March, down from 49.6 in the previous month. A reading above 50 denotes expansion, while below it denotes contraction.
The euro zone also continued to be in the negative growth zone and its pace of deterioration, in fact, worsened in March. True, Indian manufacturers reported a marked rise in new business received during March, but the rate of expansion was the weakest in three months.
Dun & Bradstreet senior economist Arun Singh does not think manufacturing has hit rock-bottom. “We are in the moderation phase,” he says. “Real recovery, though, will happen in the second half of this fiscal.” In that phase, Singh says the manufacturing sector will get a boost from the lag effect of expected RBI policy rate cuts, as inflation would further soften.
However, HSBC chief economist for India and Asean, Leif Eskesen, has a different take. While inflation of output prices eased, a further rise in input price inflation, he says, suggests a possible pick-up again, as cost pressures are passed on to customers.
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“These numbers suggest an upside risk to inflation remains. Also, the RBI’s easing cycle, in terms of timing and magnitude, depends on the extent to which these risks materialise,” he adds.
Despite an improvement in demand, power cuts and raw material shortages limited manufacturers’ ability to take on new business and customers’ propensity to place orders. In fact, improvement in demand had led to a hefty rise in production of consumer non-durable goods in January, leading to a rise in the index of industrial production to 6.8 per cent, despite dismal growth in core sector industry.
Even the eight core industries, which have a weight of 38 per cent in the index of industrial production, rose by 6.8 per cent in February. This may lead to quite a good rise in factory production, according to analysts. However, power cuts have been a big problem. Prime Minister Manmohan Singh had met players in the sector to resolve hurdles like coal-supply linkage.
Manufacturing PMI is based on data compiled from a survey of a little over 500 manufacturing companies.