Source: Business Standard, Oct. 04, 2016
New Delhi: Growth in India’s manufacturing activity eased in September on moderate growth in order books, according to the widely tracked Nikkei purchasing managers’ index (PMI) survey.
Inflation edged higher, prompting the author of the report, Pollyanna De Lima, to say that the Reserve Bank of India (RBI) might ease monetary stance in 2016. She, however, did not clarify whether the central bank will do so on Tuesday or in its December review.
After growing at the fastest clip in 13 months in August, PMI fell to 52.1 in September from 52.6 in August. The 50-point mark separates expansion from contraction.
However, employment generated by manufacturers continued to be only marginal.
One factor contributing to the slowdown in the sector was a softer increase in new business inflows, which had in August expanded at the quickest pace since December 2014. While improved client demand supported the upswing in order books, growth was reportedly hampered by strong competition for new work.
“The Indian manufacturing industry lost momentum in September, as the growth of new orders eased from August’s 20-month high. However, output is still rising at a decent clip,” said De Lima. According to her, the manufacturing sector could deliver a stronger contribution to gross domestic product (GDP) growth in the second quarter, as average PMI rose to 53.6 points during July-September, against 51.4 in April-June to 53.6. GDP grew a five-quarter low of 7.1 per cent in the first quarter of the current financial year.
However, according to the PMI report, based on a survey of 500 private-sector companies, new export orders for Indian-made goods expanded markedly in September, increasing at the quickest rate in 14 months.
Manufacturing output in India continued to increase in September, marking a nine-month sequence of growth. However, the rate of expansion eased since August and was relatively modest. In terms of official data, manufacturing in volume terms in the index of industrial production fell by 3.4 per cent in July. In the first four months, manufacturing index contracted 1.4 per cent, according to the latest available data.
Average purchase costs increased at a faster pace in September, but one that was weak compared to its long-run trend. The main item reported to be up in price was steel. Data implied that manufacturers attempted to protect profit margins as output charges were raised further. Despite ticking higher, the rate of inflation was historically muted.
Elsewhere, outstanding business volumes increased. Backlogs also continued to rise for the fourth straight month, which is blamed on delayed payments from clients.
Although inflation edged higher, it remains weak by historical standards and might indicate the RBI’s loosening monetary policy in 2016, Lima said. The monetary policy review by RBI is scheduled on Tuesday and will be the first by the newly set-up Monetary Policy Committee, chaired by the new RBI Governor, Urjit Patel.