India's Manufacturing PMI surges to 47.2 as health of sector declines for third successive month
IANS (File photo)

India's Manufacturing PMI surges to 47.2 as health of sector declines for third successive month

New Delhi, July 1, 2020

The IHS Markit India Manufacturing Purchasing Managers Index (PMI) surged to 47.2 from 30.8 in May but, despite the rise, the latest reading pointed to a third successive monthly decline in the health of the manufacturing sector, albeit one that was far softer than registered in the previous two months.

"Contributing to the further deterioration was another sharp contraction in output at the end of the second quarter. Panellists continued to suggest that coronavirus-related restrictions had constrained production capacity. That said, the rate of contraction eased considerably from May and was the softest since an expansion in March," a press release from IHS Markit said.

The release said the latest PMI data pointed to another deterioration in business conditions faced by Indian goods producers during June. The downturn was primarily driven by sharp contractions in both output and new orders, with regional lockdown extensions severely hampering demand conditions. That said, both rates of decline eased considerably from May, continuing the trend towards stabilisation since April's historic lows. Meanwhile, firms continued to reduce staff numbers at a marked pace.

"Another key factor behind the decline in operating conditions was a further decrease in new business during June. The latest contraction extended the current sequence of falling sales to three months, although the pace of reduction decelerated to the slowest since the introduction of lockdown measures in March.

"Overall demand received little support from international markets, with new export orders falling for the fourth month in a row. Although the rate of decline eased to the softest since March, it remained sharp overall. When explaining the reduction in demand, panellists often cited the coronavirus pandemic.

"In line with the continued deterioration in demand conditions, Indian goods producers recorded a further reduction in employment during June. Despite easing from May's survey record, the rate of workforce contraction remained among the quickest since data collection began in March 2005. Similarly, reduced output requirements saw firms continue to cut their purchasing activity, with the result extending the current run of contraction to four months. However, the latest decline in input buying was the slowest since March and only marginal overall," the release said.

The PMI is a seasonally adjusted composite single-figure indicator of manufacturing performance in the country. It is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 400 industrial companies. An index reading above 50 indicates an overall increase in that variable, below 50 an overall decrease.

According to the release, on the cost front, input prices faced by Indian manufacturers continued to fall. The rate of decrease accelerated from May, but remained far softer than April's survey record. Amid falling cost burdens, manufacturers opted to continue cutting their average output prices. Despite easing for the second month in a row, the rate was solid overall. Anecdotal evidence suggested that firms reduced charges in an attempt to support sales.

Looking forward, firms remained positive towards the 12-month business, with sentiment strengthening to a four-month high. However, the degree of optimism remained far weaker than the historical average amid fears of a prolonged economic downturn due to the coronavirus outbreak.

Eliot Kerr, Economist at IHS Markit, said, "India's manufacturing sector moved towards stabilisation in June, with both output and new orders contracting at much softer rates than seen in April and May. However, the recent spike in new coronavirus cases and the resulting lockdown extensions have seen demand continue to weaken.

"Should case numbers continue rising at their current pace, further lockdown extensions may be imposed, which would likely derail a recovery in economic conditions and prolong the woes of those most severely affected by this crisis," he added.


Related Stories