India's manufacturing activity contracted at a sharper pace in July: Survey

Asia's third-largest economy, which has the third-highest coronavirus caseload globally, is expected to shrink at its sharpest pace since 1979 this fiscal year, a Reuters poll found last week.

India’s manufacturing activity contracted at a faster pace in July after showing some recovery in June, as localised lockdowns by state governments took their toll on business activity.

The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) dropped to 46 in July from 47.2 in June. The reading pointed to a “marked deterioration in business conditions across the Indian manufacturing sector,” to which firms responded by cutting both staff numbers and purchasing activity, IHS Markit said in its report.

A reading below 50 in the index is an indicator of contraction, while one above that shows expansion.

Data from Indian manufacturers shed more light on the state of economic conditions in one of the countries worst affected by the Covid-19 pandemic, IHS Markit economist Eliot Kerr said in the report.


“The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months,” he said.

The Centre imposed a nationwide lockdown on March 25 to contain the spread of Covid-19. The restrictions were eased in phases starting May, but several state governments opted for stringent local shutdowns last month to quell outbreaks, impacting the pickup in activity. Indicators such as unemployment data that had shown improvement in June were tepid in July due to the re-emergence of lockdowns.

The economy did not gather pace in July after the June spurt amid rising Covid-19 cases and mini shutdowns, denting the recovery, ET had reported Monday. Retail remained sluggish, credit growth was lower, diesel demand fell and mobility indicators did not suggest increased activity in the month, it said.

According to the IHS Markit report, subdued demand was evidenced by another marked decrease in new orders placed with manufacturers last month, and attributed to often-cited prolonged closures at clients’ businesses. Further contraction in new export orders was seen, as international clients were hesitant to place orders while the duration of the pandemic remained uncertain. The latest reduction in exports was the softest for four months.

Kerr said conditions were unlikely to improve until infection rates were brought under control and lockdowns could be lifted. “Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won't see a pickup in activity until infection rates are quelled and restrictions can be further removed,” he said.

Contrary to prevailing conditions, manufacturers were increasingly optimistic over future activity, the report said. Sentiment toward the 12-month business outlook improved for the second month in a row to reach a five-month high. However, the degree of positivity was still well below the historical average, it said.
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