India’s manufacturing sector growth eased to a four-month low in June amid a slowdown in output and new orders as softer domestic consumption partly offset strong foreign demand, a business survey said. 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. In June, the PMI still held above the 50 level that separates growth from contraction for a sixth straight month.
“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.
Manufacturing growth slowed last month largely as domestic consumption cooled even as external demand remained solid. The new orders sub-index — which takes into account both domestic as well as foreign demand — declined to 51.3, the lowest level since February, from 52.6 in May. “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 said.
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. 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.
Optimism about future output also slipped for the first time in four months as manufacturers expressed concerns about the initial impact of GST that came into effect on Saturday. On the brighter side, recovery in foreign demand for Indian manufactured goods helped drive export orders to an eight-month high in June, after a contraction in May. Although manufacturers experienced reduced input cost pressures last month they did not pass on the benefits to customers.