 "Yet to see green shoots of recovery: Economists")
The HSBC purchasing managers’ indices (PMIs) for manufacturing and services showed a contrasting trend during the two months. While manufacturing PMI growth touched a 50-month low of 50.1 points in May, against 51 points in April, the services index rose from 50.7 to three-month high of 53.6 points.
As such, services recovered from near-contraction, while manufacturing moved towards a contraction trajectory. In fact, manufacturing output contracted in May, but the PMI reading showed growth, as it also included outlook and orders.
Economists said often, the two dominant sectors of the economy didn’t coincide with each other. “Manufacturing and services do not move in parallel. If you see the services demand in May, there is a slight pick-up, but core manufacturing shows it is not so. It is difficult to find a direct co-relation,” said Anis Chakravarty, senior director, Deloitte India.
Many economists say it is too soon to conclude the economy has started seeing a recovery. “It is very early to say if we are witnessing green shoots of recovery because ultimately, if we look at the services sector, its demand comes from what other sectors are producing,” said Devendra Pant, Director, India Ratings.
In 2012-13, services, including construction, accounted for 67 per cent of the country’s gross domestic product (GDP).
Pant said the manufacturing sector wasn’t showing signs of good recovery yet. “The only thing one can say is since January, there is positive growth, which is not very high. Therefore, it would be too early to say if green shoots of recovery are there,” he said, adding only if growth stabilised for three to four months, would the economy be on the recovery path.
Some said positive signs were witnessed in the economy. “HSBC has also talked about aggregate index, which shows India is doing better than other emerging economies such as Brazil, Russia and China,” Pant said. At 51.2 points, China’s services PMI remained flat in May, against 51.1 points in April. Manufacturing PMI for that country slid to negative territory---49.2 points, compared with 50.4 in April. In Brazil, services PMI declined from 51.5 in April to 51.2 points in May; manufacturing PMI for that country fell from 50.8 points to 50.4. For Russia, manufacturing PMI slid from 50.6 to 50.4 points, while services PMI fell to 51.4 points from 53.
According to official GDP data, India’s services sector grew merely 6.3 per cent in the quarter ended March, against 6.2 per cent in the previous quarter, while manufacturing growth remained flat at 2.5 per cent.
On the varying trends in the Index of Industrial Production and PMI, Pant said, “Basically, PMI data is forward-looking data. If we look at PMI in manufacturing and map it with IIP numbers, sometimes, these are contradictory. IIP numbers would only tell what happened two months ago.”
Chakravarty said both the sets of data were equally important; none could be ignored. “The question is not of ignoring one and picking the other; it should just be relevant enough to explain today’s macroeconomic conditions. And, from that perspective, both are relevant. In a broad sense, both the indices tell a story,” he added.
IIP data for April is scheduled to be released on Wednesday.India’s GDP growth rose to 4.8 per cent in the quarter ended March from 4.7 in the previous quarter. In the quarter ended March 2012, it stood at 5.1 per cent.
Chakravarty said there were improvements on various macroeconomic fronts. “There is no the doubt current account deficit (CAD) will come down. We are seeing a slight upside recovery in exports as well, not on a monthly basis, but on an overall directional basis. Trade deficit is also declining,” he said.
In the quarter ended December 2012, CAD stood at 6.7 per cent of GDP. For 2012-13, it is expected CAD would be about five per cent.