The contraction of the Indian manufacturing sector picked up speed during December, with the ABN Amro seasonally adjusted Purchasing Managers’ Index (PMI) falling to a new low of 44.4, compared with 45.8 in November. (A reading of below 50 signals contraction.)

December was thus the second consecutive month in which the manufacturing sector shrank. Clearly, the Reserve Bank of India (RBI) and the government’s efforts to boost the economy have not yet started working. There are no signs that we have reached a bottom. A bigger push by the government and RBI is needed.

December was also the first month in which the PMI sub-index for employment fell below the 50 mark. The employment PMI fell to 47.5 during the month, indicating that employment in manufacturing has started to contract. The survey points out: “The latest index figure suggested a modest rate of job-shedding in the Indian manufacturing economy. Companies stated that job cuts were needed to reduce costs as incoming new work contracted further.”

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The fall in employment is ominous, as it is certain to have an adverse effect on consumption demand, pulling down the economy further.

The biggest decline was in the new export orders sub-index, which fell to 40.8 from 46.7 during the previous month. That suggests that the slowing of the rate of decline in exports in November (government data shows it fell by 9.9% in November, compared with a drop of 12.1% in October) may not really be a sign of hope.

The overall new orders sub-index also continued to contract, falling to 41.4 in December from 43.2 in the previous month. With today’s orders becoming tomorrow’s output, that’s another leading indicator of lower output in future.

The other slightly worrying signal—hopefully a blip—is that while the input price sub-index was more or less unchanged in December from the previous month, the output price sub-index saw a further fall. That seems to indicate that firms are cutting prices to increase sales, a conclusion borne out by the automobile sector.

If the trend continues, corporate margins will be under pressure, despite falling input costs.

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