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Manufacturing PMI falls to 4-month low in June on weak demand, GST concerns

New Delhi: Manufacturing growth eased to a four-month low in June owing to weak client demand, water scarcity and concerns related to GST, a monthly survey showed today, rekindling rate cut call.

However, foreign demand for India-manufactured goods improved in June, with new export orders moving at the quickest pace since October 2016.

The Nikkei India Manufacturing Purchasing Managers' Index (PMI) fell to a four-month low of 50.9 in June, from 51.6 in May, signalling a subdued improvement in the manufacturing sector.

In February, the manufacturing PMI read 50.7.

"The slowdown occurred due to weak client demand, with orderbooks up at a slight and softer pace. In many cases, businesses indicated that growth was held back as a reflection of water scarcity and... the Goods and Services Tax (GST)," said Pollyanna De Lima, Economist at IHS Markit and author of the report.

Representational image. Reuters

Representational image. Reuters

"On a more cheerful pitch, the PMI survey showed strong foreign demand for Indian-manufactured products in June. New orders from external markets increased at a solid rate that was the most pronounced in eight months," Lima added.

Meanwhile, confidence towards future performance remained mixed among goods producers. While the new tax system is expected by some firms to generate more business, others feel that GST will have a detrimental impact on orderbooks.

"As such, overall optimism slipped to a three-month low," Lima said.

The manufacturing PMI averaged 51.7 during the April-June quarter, above the one seen in the previous quarter.

"With the impact of demonetisation largely over and the GST unlikely to substantially derail consumer spending, IHS Markit forecast real GDP growth to hit 7.3 percent for 2017-18 as a whole," Lima said.

The survey further found out that payroll numbers and purchasing activity increased only marginally.

On the price front, there were signs of inflationary pressure losing speed as input costs rose to a lesser extent than in May.

In the monetary policy review on 7 June, the RBI left key rates unchanged with Governor Urjit Patel noting that the central bank wanted to be more sure that inflation will stay subdued.

Updated Date: Jul 03, 2017 12:18 PM

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