Manufacturing activity in India slumped to a 15-month low in August as sales slowed, forcing factories to cut back on production, a private survey showed, while separately released government numbers showed muted output rise in the infrastructure sector in July.
The twin sets of data indicated the lack of any indications of recovery, both in demand or investment, in the economy in the second quarter from the six-year low it touched in the June quarter.
The IHS Markit India Manufacturing PMI fell to 51.4 in August from 52.5 in July, its lowest since May 2018 and below its long-run average of 53.9. However, it remained above the 50-point mark that separates expansion from contraction. PMI stands for purchasing managers’ index.
The index of eight core industries, which measures output in eight infrastructure industries, rose 2.1% in July, ahead of 0.7% in June. This index has a 40% weight in the Index of Industrial Production (IIP), suggesting modest industrial growth in July. Data released on Friday showed the Indian economy grew 5% in April-June period, the lowest in 25 quarters.
“Most PMI indices moved lower, including key health-check measures for new orders, output and employment,” said Pollyanna de Lima, principal economist at IHS Markit. “Another worrying sign was the first drop in input buying for 15 months, which reflected a mixture of intentional reductions in stocks and shortages of available finance.”
New business continued to flow in, but August saw the rate of expansion ease to a 15-month low, the survey said.
Manufacturing output grew at the slowest in a year and job growth remained marginal despite output expansion.
Steps Announced to Curb Slump
In the last two weeks, the government has announced a number of measures including consolidation of public sector banks and capital infusion in them besides a relaxation in foreign investment norms and steps to ease credit flow to reverse the slowdown.
Oxford Economics said India’s full-year growth could slip below 6% in 2019 and expects a further cut of 75 basis points in the benchmark interest rate by the Reserve Bank of India. The RBI has already cut interest rates by 110 basis points this year in order to shore up growth. One basis point is one-hundredth of a percentage point.
The country’s largest car manufacturer Maruti Suzuki posted a 35.9% decline in sales in August in yet another dismal month for most automakers.
Still, producers remained optimistic in August, expecting an increase in demand as well as marketing efforts to support output growth, according to the survey.
In the core sector, cement (7.9%) and steel (6.6%) posted good growth.
“Post the surprisingly weak GDP growth momentum in Q1 FY20, the moderately healthy growth of cement and steel output in July 2019 offers some encouragement,” said Aditi Nayar, principal economist, ICRA. “However, we await evidence of a broader turnaround in activity in additional sectors, particularly around the festive months, before confirming that an upturn has taken root.”
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