Manufacturing PMI slows on weaker demand in April

NEW DELHI: The new fiscal that is widely expected to put the economy back on track has started on a weak note. India’s manufacturing activity moderated in April because of softening domestic demand and the slowing pace of output growth, a private survey showed on Monday.

The HSBC India Purchasing Managers’ Index (PMI) fell to 51.3 points in April from 52.1 in the previous month, pointing to subdued manufacturing sentiment.

A reading of over 50 on this survey-based index shows growth, while one below that indicates contraction. The number “pointed to a weaker improvement in operating conditions across the sector,” HSBC said in a statement but was hopeful going ahead.

“Even with the slower pace of expansion, the goods-producing sector is on course to provide a boost to the overall economy in the upcoming quarter,” said Pollyanna De Lima, economist at Markit, the agency that compiles the index. The pace of new orders eased, resulting in reduced staffing levels and lower output, said the report based on a survey of 500 private sector firms.

The official data on the core sector released last week showed that output from eight infra sectors shrank for the first time in 17 months in March by 0.1%, indicative of supply side constraints in the economy. Higher output was recorded across categories, with growth strongest for capital goods firms and slowest for the consumer goods sub-sector, which suggests a pickup in investment.

There was good news for exports as well. “A highlight of the latest survey was the strong external market, with the rise in new export business remaining solid,” De Lima said. The report said that companies reported greater inflow of new business from key export clients, particularly from those operating in Asia. India’s exports contracted 21.06% in March, the sharpest pace in six years.

CASE FOR RATE CUT

The report highlighted that April saw the first decrease in average selling prices in almost two years. Manufacturers indicated that discounts had been offered as part of efforts to secure new business, the report noted. “On the price front, tariffs fell for the first time since May 2013, as firms responded to weaker cost inflation. Even with the slower pace of expansion, the goods-producing sector is on course to provide a boost to the overall economy in the upcoming quarter,” it said.

According to the official data, inflation has so far remained well under control with wholesale deflation deepening to 2.33% in March and retail inflation, the primary gauge for the Reserve Bank of India, standing at 5.17%. The central bank cut interest rates twice by 25 basis points each in January and March. The next monetary policy review is scheduled for June 2.