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After deteriorating the first time in four years in August this year, manufacturing activity contracted for the second consecutive month in September, according to the HSBC Purchasing Managers’ Index (PMI) released on Tuesday.
The PMI for manufacturing stood at 49.6 points in September, marginally up from 48.5 in August. This indicates a moderate contraction, as a reading below 50 points indicates contraction.
With this, the PMI quarterly average for the second quarter of this year stands at 49.4 points, the lowest since the fourth quarter of 2008 when the index stood at 47.7 points.
“Manufacturing activity continued to shrink in September, albeit at a slower pace. Order flows remain weak, especially export orders, and employment fell,” said Leif Eskesen, chief economist for India & ASEAN at HSBC.
According to Markit Economics, the financial firm which collects this data, new orders fell, but the contraction of export business accelerated to the sharpest in two years. Markit Economics pointed out that according to anecdotal evidence, a depreciation of the rupee versus the US dollar resulted in higher prices paid for inputs and limited firms’ ability to price competitively.
This is the second such indication pointing to the global financial crisis of 2008-09. The gross domestic product (GDP) for the first quarter, released last month, stood at a four-year low of 4.4 per cent.
Economic growth was lower than this in the fourth quarter of 2008-09, at 3.5 per cent.
The PMI numbers do not often match with the official numbers as these include not only output but also the forecast.
The PMI data in August showed contraction of export. However, according to official estimates, exports witnessed a two-year high growth rate of 13 per cent. Also, the Index of Industrial Production (IIP) for manufacturing has been declining consistently since September last year.
The PMI numbers have shown mixed trend comparatively.
According to Markit Economics, employment fell for the first time in 19 months, mainly because of reduction in new order levels resulting in fewer projects. There was a sharp rise in input costs this month, with all three sectors covered by the survey signalling “stronger rates of cost inflation in the latest month”.
Eskesen said: “Despite the weak growth readings, the build-up in underlying inflation pressures suggests that RBI has to keep its inflation guards up.” RBI governor Raghuram Rajan had recently increased the repo rate by 25 basis points to 7.5 per cent as inflation remained a pain. The wholesale inflation surged to a six-month high of 6.1 per cent in August, while retail inflation remained at a high 9.5 per cent in that month.
However, there were some positives, too, as the capital goods segment was the best performing sub-sector in September, with production, new orders and purchasing activity all expanding. On the contrary, both consumer and intermediate goods production fell in all of these variables. The industrial output rose to four-month high of 2.6 per cent in July owing to the boost provided by capital goods. This had contributed 1.4 per cent growth to the IIP. The capital goods grew at a massive two-year high of 15.6 per cent in July against contraction of almost 6 per cent a year ago.
There was some optimism in the industrial sector as according to the official data released on Monday, the eight infrastructure sectors that contribute almost 38 per cent of the industrial production rose to a seven-month high of 3.7 per cent in August. Experts said the PMI data has bought back the pessimism in the industrial sector.
