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India’s manufacturing activities, now a focus area for the government at the Centre, saw moderation in growth in April when compared with the previous month, because of lower expansion in new orders, showed the widely tracked HSBC Purchasing Managers’ Index (PMI). As expansion in new orders slowed, firms did not increase output much and reduced hiring.
Weaker input inflation enabled companies to lower selling prices. The average selling price fell for the first time in April in two years, prompting economists to call for a rate cut by the Reserve Bank of India (RBI), as recovery in manufacturing activities was sluggish.
Manufacturing PMI in April fell to 51.3 points from 52.1 in March. But it was higher than the 51.2 points in February. A PMI reading above 50 shows expansion, while one below that implies contraction. This was the 18th straight month of expansion in the country’s manufacturing activities.
“Following the solid readings seen in March, the Indian manufacturing economy recorded a slowdown in growth during April. Total new orders increased at a weaker rate and, as a result, companies reduced staffing levels and raised output to a smaller degree,” Markit Economics, which compiles PMI data, said.
The PMI data came at a time when official data showed output of eight crucial industries, with a weight of almost 38 per cent in the index of industrial production, declined for the first time in 17 months in March.
Markit Economics further said a slowdown in expansion of manufacturing activities reflected a softer increase in order book volumes. Higher output was recorded across categories, with growth strongest for capital goods firms and slowest for the consumer goods sub-sector.
New order volumes continued to rise in April, marking an 18-month expansionary sequence. That said, the rate of growth moderated since March, with data pointing to softening domestic demand and competitive pressures.
Anis Chakravarty, senior director, Deloitte in India, said, “Manufacturing activity continued to expand in April albeit at a slower rate, as overall new orders rose at a weaker pace. Higher output levels were seen in all the monitored good categories, with the crucial capital goods segment recording the strongest growth and consumer durables recording the lowest probably reflecting the fact that domestic demand was yet to pick up in a meaningful way.”
Surprisingly, Markit Economics said demand from external markets remained strong, as the level of new export orders increased at a solid pace that was unchanged since the previous month. This is not in sync with export performance so far. In March, the country’s merchandise exports fell for a fifth month in 2014-15.
However, the PMI survey pointed to interested developments related to exports — companies reported greater inflow of new business from key export clients, particularly from those operating in Asia.
Pollyanna De Lima, economist at Markit, said: “A highlight of the latest survey was the strong external market, with the rise in new export business remaining solid.”
April saw companies maintain a cost-cautious approach to hiring. Job losses were reported for the second time in the year-to-date. Nevertheless, the rate of job shedding was fractional overall as the vast majority of panelists signalled no change in employment levels.
Input prices continued to rise in April, albeit at a slight and weaker rate. Companies signalled further price increases for a number of raw materials, but also reported successful negotiations with suppliers.
The April data highlighted the first decrease in average selling prices for almost two years. Manufacturers indicated that discounts had been offered as part of efforts to secure new business. There were also mentions that a weaker increase in cost burdens improved firms’ ability to price competitively.
Chakravarty said even as input prices paid by producers rose for the second consecutive month, average selling prices declined for the first time in almost two years highlighting the scope for further easing of monetary policy.
SLOW EXPANSION
