Growth in India’s manufacturing sector declined to a nine-month low in August, according to HSBC’s Purchasing Managers’ Index (PMI). This shows the manufacturing sector continues to face sluggishness, after official data on gross domestic product (GDP) showed flat growth in factory output during the quarter ended June.
Grid failures in the beginning of August and shrinking export orders saw manufacturing PMI falling to 52.8 points, compared with 52.9 in July, according to a statement by Markit Economics, a financial information firm that compiles the data. In November 2011, the index stood at 51 points.
A reading of 50 or more indicates expansion, while one below 50 shows contraction.
Though the index has not shown contraction for about three years, official Index of Industrial Production (IIP) data showed the manufacturing sector contracted for two months—April and June. In fact, GDP data showed manufacturing expanded just 0.2 per cent in the quarter ended June, against 7.3 per cent in the year-ago period. This is because while official data is annual, PMI shows month-on-month change.
Meanwhile, the index of eight core industries grew just 1.8 per cent in July, suggesting the industry, dominated by manufacturing, would not show robust growth for the month.
“The momentum in the manufacturing sector eased further on the back of weak external demand and output disruptions caused by the major power failures in early August,” said Leif Eskesen, chief economist for India and the Association of Southeast Asian Nations at HSBC.
The power failures also contributed to a rise in backlog, as manufacturing companies struggled to complete orders on time. Export orders recorded the second consecutive monthly fall, owing to weak international demand and an unfavourable exchange rate.
In August, input price inflation persisted in the manufacturing sector due to general market inflation and increasing raw material prices. However, though the rise was steep, it was the lowest in six months. Output inflation rose, owing to higher import costs and taxes. “With the slowdown partly supply-driven and inflation risks still lingering, these numbers underscore the fact that the room for policy rate cuts is very limited at the moment,” said Eskesen.
All eyes are now on the Reserve Bank of India’s policy review on September 17. Though inflation eased to 6.87 per cent in July, against 7.25 per cent in June, there are no signs of a rebound in growth yet.
