Manufacturing suffers setback in June; PMI down to 52.1 on weak demand

Growth in India’s manufacturing sector slowed last month as the expansion in new orders and output eased despite factories cutting prices again, according to a private survey which also showed a decrease in the rate of hiring.

The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, fell to 52.1 in June from 52.7 in May, but remained above the 50-mark that separates growth from contraction for a 23rd month.

“PMI data highlighted a slight setback in the Indian manufacturing sector during June,” said Pollyanna De Lima, principal economist at IHS Markit.

“Gauges of factory orders, production, employment and exports remained inside growth territory, but rates of expansion softened in all cases as domestic and international demand showed some signs of fading.”

A sub-index tracking output prices fell to a 45-month low in June, in contraction territory for a second straight month, although the rate of increase in input prices was unchanged.

Easing price pressure is likely to keep overall retail inflation in check. It hit a seven-month high in May but remained below the Reserve Bank of India’s medium-term target of 4% for a 10th month.

That, along with an economic slowdown, might lead to further policy easing by the RBI which last month made its third cut to interest rates this year.

Optimism about output over the coming 12 months also fell, acting as a drag on job growth in the industry.

“Also, a further decline in unfinished business points to excess capacity among goods producers, meaning that job creation may come to a halt in the near term should demand growth fail to revive,” De Lima added.