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Business News/ Industry / Manufacturing/  India’s July manufacturing PMI contracts faster than in June

India’s July manufacturing PMI contracts faster than in June

  • Data released by the data analytics firm IHS Markit showed purchasing managers' index for manufacturing declined slightly in July to 46 from 47.2 in June

Subdued demand was evidenced by marked decrease in new orders placed with manufacturers in July. Similar to the trend for output, the pace of decline accelerated from June, but remained slower than at the height of the current crisis.

New Delhi: India’s manufacturing output in July contracted at a faster pace than in June, signaling local lockdowns imposed across the country by state governments amid demand slump is impacting business activities at the national level.

Data released by the data analytics firm IHS Markit showed purchasing managers' index (PMI) for manufacturing declined slightly in July to 46 from 47.2 in June. A figure of above 50 indicates expansion, while a sub-50 print signals contraction.

Eliot Kerr, economist at IHS Markit said 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. “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 pick-up in activity until infection rates are quelled and restrictions can be further removed," he added.

While the Centre started lifting the two-month long lockdown in phases beginning 1 June, allowing most of the business activities, emergence of new epicentres of covid-19 pandemic in the southern and eastern Indian states have led to local authorities putting fresh mobility restrictions, thus disrupting normal business activities.

Finance minister Nirmala Sitharaman during an interaction with media on Saturday said a complete picture about growth recovery is yet to emerge. “As long as the pandemic is active, we are talking about a situation full of uncertainty," she added.

Indian Oil Corporation Ltd (IOC), the country’s largest fuel retailer on Friday said that its capacity utilization, which had increased to around 93% in the first week of July, has come down to 75% on account of many state governments imposing fresh lockdowns measures.

Madan Sabnavis, chief economist at Care Ratings said the latest dip in PMI is indicative of the fact that the supply chains have not yet been cemented and the localized lockdowns have affected production. “Also notwithstanding the unlock process households are still not free to move to provide push to the consumption cycle. Further, the beginning of monsoon has impacted both construction and other infrastructure work, thus pushing down the PMI," he added.

The International Monetary Fund (IMF) last week said high-frequency indicators signal plateauing of economic activity in India as the positive impact from unlock is not as strong as the negative impact of the lockdown. It urged the government to urgently contain the spread of the coronavirus pandemic on a priority to make economic recovery sustainable.

The IMF has estimated Indian economy to contract by 4.5% in FY21, while Goldman Sachs expected the June quarter to be the worst, with GDP shrinking by 45% as business activity came to a standstill for at least two months due to stringent lockdown measures.

ICRA Ltd earlier this month revised its GDP projection for India in FY21 to contraction of 9.5% from 5% estimated earlier citing unabated rise in covid-19 infections in the unlock phase and persisting labour supply mismatches affecting supply chains and consumption patterns. “Given the severity of the pandemic and the duration of the safety measures that need to be employed, we now expect a deeper pace of GDP contraction in Q2 FY21 relative to our earlier forecast. The timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least Q4 FY21 from Q3 FY21," it added.

Subdued demand was evident in the latest PMI by marked decrease in new orders placed with manufacturers during July. Similar to the trend for output, the pace of decline accelerated from June, but remained slower than at the height of the current crisis.

However, despite current operating conditions continuing to deteriorate, manufacturers were increasingly optimistic regarding future activity. Sentiment towards the 12-month business outlook improved for the second month in a row to reach a five-month high even though the degree of positivity was still well below the historical average.

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