Manufacturing growth slips to 3-month low in May as demand for goods slacken

India's manufacturing sector growth moderated to a three-month low in May hit by softer rise in new orders and production, a monthly survey showed Thursday. The data comes a day after the country's GDP numbers showed a sharp dip in both the January-March quarter and financial year ending 2016-17.

While the GDP grew 6.1 percent in the fourth quarter of previous fiscal, for the full fiscal year the growth came in a 7.1 percent, failing to meet analysts' estimates amid note ban-induced slackening demand.

Meanwhile, muted inflationary pressure may prompt the Reserve Bank to adopt an accommodative policy stance, the survey said.

Reuters

Reuters

The Nikkei Markit India Manufacturing Purchasing Managers' Index (PMI) -- an indicator of manufacturing activity -- declined from 52.5 in April to a three-month low of 51.6 in May.

The Indian manufacturing sector, however, stayed in expansion mode for the fifth consecutive month in May. A reading above 50 indicates expansion, while any score below the mark means contraction.

"The upturn in the Indian manufacturing sector took a step back in May, with softer demand causing slower expansions in output and the amount of new work received by firms," said Pollyanna De Lima, Economist at IHS Markit and author of the report, adding that there was also a renewed decline in new export orders.

During May, there was "softer expansions" in both new orders and production. Incoming new work rose at the weakest pace since February, with slowdowns evident in the consumer and intermediate goods categories, while capital goods producers recorded a contraction in order books.

On price rise, the survey said that the rate of inflation softened to the slowest in eight months.

"With inflation under control and manufacturing growth below par, we may see the RBI changing neutral monetary policy stance to accommodative in coming months in order to support the economy," Lima said.

The Reserve Bank in its monetary policy review meet on 6 April kept the repurchase or repo rate -- at which it lends to banks -- unchanged at 6.25 percent, but increased reverse repo rate to 6 percent from 5.75 percent.

With regards to future performance, goods producers were the most optimistic in last next six months, with firms expecting new product launches, machinery acquisitions and marketing campaigns to support output growth in the year ahead.

"Echoing a more positive tone, the PMI dataset highlighted a stronger increase in businesses' input purchasing, while optimism reached a six-month peak," Lima said.

(With PTI inputs)


Updated Date: Jun 01, 2017 12:07 PM

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