Manufacturing sector purchasing managers' index stagnates in July

NEW DELHI: Manufacturing activity in India slipped in July as output fell and order flows weakened, indicating a broad stagnation in the sector, a private survey showed on Thursday.


The seasonally adjusted HSBC Purchasing Managers' Index (PMI) fell to 50.1 from 50.3 in June, just fractionally above the crucial mark of 50 that separates growth from contraction. The index, compiled by Markit, is designed to measure the overall health of the manufacturing sector.

"Activity in the manufacturing sector was broadly flat as order flows weakened led by slower growth in export orders," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

The bank said in a release that output fell in July amid evidence of falling new orders, tough economic conditions and raw material shortages. "The rate of decline, however, was fractional and eased since June," the release said.

The latest government data also suggested a dismal manufacturing performance. While industrial production saw a 1.6% contraction in May, the eight crucial sectors showed a muted 0.1% growth in June, dampening hopes of an early economic recovery.

The PMI, based on the survey of executives of 500 private firms, said new export orders rose in July, albeit modestly because of rising competition in the foreign markets. The overall growth in exports was the weakest in three months, the survey showed. Exports had contracted 4.6% in June, prompting the government to announce a slew of sops for exporters on Wednesday.

The PMI data, however, showed a slight increase in employment levels in the manufacturing sector in July. The level of job creation rose for consumer goods firms, but remained flat for intermediate and investment goods firms.

Inflation pressures firmed for both input and output prices, partly on the back of higher imported inflation due to the weaker currency. "The data suggests that Reserve Bank of India is likely to keep policy rates on hold for a while given lingering inflation risks and that the recently introduced currency stabilisation measures will not be lifted anytime soon," HSBC's Eskesen said. Reserve Bank of India had left the repo rate, or the rate at which it lend to banks, unchanged at its meet on July 30.