Manufacturing growth slows as new orders, production ease

The RBI policy review is scheduled to be announced on Tuesday and the latest PMI survey may add to the clamour for rate cut by RBI.

By: ENS Economic Bureau | Mumbai | Published:October 4, 2016 1:08 am

After growing at the fastest clip in 13 months in August, India’s manufacturing sector growth moderated in September as pace of new orders and production eased, but subdued inflationary pressure may prompt RBI to cut the interest rate, says a monthly survey.

The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) — a gauge of manufacturing performance — fell to 52.1 in September from 52.6 in August, indicating that growth in the sector lost some momentum. “The Indian manufacturing industry lost momentum in September as growth of new orders eased from August’s 20-month high,” said Pollyanna De Lima, Economist at IHS Markit that compiles the data and author of the report.

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The RBI policy review is scheduled to be announced on Tuesday and the latest PMI survey may add to the clamour for rate cut by RBI. Bankers and experts are divided on whether the rates would be lowered or kept unchanged.

Despite the slower pace of factory output growth, business conditions improved for the ninth straight month as the index held above the crucial 50 threshold. However, the rate of expansion eased since August and was relatively modest. A reading above 50 points to expansion while one below means contraction. “Output is still rising at a decent clip and the sector looks likely to have delivered a stronger contribution to GDP growth in second quarter of 2016-17, with the quarterly reading for the PMI output index up from 51.4 during April-June to 53.6,” Lima said.

The new orders from abroad for India-manufactured goods expanded markedly in September at the fastest pace in 14 months. Greater workplace activity led companies to scale up their buying activity and hire additional workers in September, but only marginally. On the prices front, the survey found the average purchase costs rose at a faster pace in September, but it was weak in comparison to the long-run trend. “Although inflation rates edged higher, these remain weak by historical standards and indicate that we may still see RBI loosening monetary policy in 2016,” Lima added.

It is the first review through the MPC (Monetary Policy Committee) framework. Besides, it would be the first review under the new RBI Governor Urjit Patel, who assumed charge effective September 4 after end of his predecessor Raghuram Rajan’s three-year tenure.