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Business News/ News / India/  More signs emerge of stress in the economy
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More signs emerge of stress in the economy

Core sector growth stalls to 2.1%, manufacturing PMI slips to 15-month low
  • Moderately strong growth in cement and steel could indicate improvement in the construction sector’s health
  • The weakness in manufacturing output appeared to be a global trend. (Akhilesh P./Mint)Premium
    The weakness in manufacturing output appeared to be a global trend. (Akhilesh P./Mint)

    NEW DELHI : Growth in eight infrastructure industries that make up two-fifths of the index of industrial production (IIP) slowed to 2.1% in July, indicating that India’s economic slump may deepen unless the government takes additional measures to reverse it.

    Growth in July slowed from 7.3% in the year-ago period due to contraction in output of coal, crude oil, natural gas and refinery products, official data released on Monday showed. Earlier in the day, a private survey showed India’s manufacturing output in August grew at the slowest pace in 15 months.

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    In the past 10 days, the government has responded to the growth slump by announcing a slew of measures ranging from combining state-run banks and withdrawing a tax surcharge on foreign portfolio investors to a series of measures to help vehicle makers and state-run banks.

    Economic growth slumped to 5% in the three months ended June, the slowest pace in six years.

    A silver lining is that the July output of the eight core industries is an improvement from the revised 0.7% growth in June. Also, the moderately strong growth in cement and steel sectors in July—though slower than the growth reported in the same month last year—could indicate signs of some improvement in the construction sector’s health. Fertilizer output growth in July remained nearly flat from a year ago while electricity generation growth moderated somewhat.

    A pickup in government spending after the Union budget may support cement and steel production in the next few months, said Aditi Nayar, principal economist at rating agency Icra Ltd.

    The seasonally adjusted IHS Markit India manufacturing purchasing managers’ index (PMI), based on a survey of 400 producers, retreated from 52.5 in July to 51.4 in August—its lowest mark since May 2018, the market information supplier said in a statement. The survey tracks new orders, output, jobs, suppliers’ delivery time and stocks of purchases. A reading above 50 indicates expansion, while a sub-50 print is indicative of contraction.

    The weakness in manufacturing output appeared to be a global trend. Manufacturing across vast parts of Europe and Asia remain deeply mired in a crisis, Bloomberg reported, citing PMI surveys for different countries. The report said PMI for Germany and Italy to Japan, South Korea and Taiwan as well as the 19-nation euro area signalled a contraction in activity.

    Experts attributed the current economic downturn in India to sluggish growth in income levels leading to a demand slowdown, compounded by problems in specific sectors and adverse global economic headwinds. “Going forward, a few macro factors will help in economic growth. First one is the lagged effect of the RBI’s rate cut in terms of transmission. Also, government spending has begun to move up after the process of elections and the presentation of the full budget, which is going to be a big relief. Thirdly, the base effect will also come to play. Although there is weak sentiment globally, I have no hesitation in saying the second half of this fiscal is likely to be better than the first," said Sachchidanand Shukla, chief economist at Mahindra Group.

    Persisting weakness in economic growth may prompt the Reserve Bank of India (RBI) which has so far cut the benchmark interest rate four times since January to continue with its monetary stimulus and put pressure on the Central government to go for a fiscal stimulus despite its tight finances.

    Finance minister Nirmala Sitharaman said during a briefing of reporters in Chennai on Sunday that the central government will take a proposal for lowering the goods and services tax (GST) rate on automobiles to federal indirect tax body, the GST Council, to give relief to the industry facing a crippling demand slowdown.

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    Gireesh Chandra Prasad
    Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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    Updated: 02 Sep 2019, 11:51 PM IST
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