India’s manufacturing activity again contracted in June as regional lockdown extensions severely held back demand and labour logistic challenges remained, said the monthly IHS Markit India Manufacturing Purchasing Managers’s Index (PMI) survey on Wednesday.
Manufacturing PMI stood at 47.2 in June after May’s 30.8 and April’s historic low of 27.4. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
“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,” said Elliot Kerr, economist at IHS Markit. Kerr warned that further rspikes in cases may bring further lockdowns which would derail a recovery in the sector.
A nationwide lockdown in April, coupled with a crash in export orders, had led to conditions across sectors falling by the biggest margin ever and new businesses collapsing at a record pace. Since then, jobs has been hit the most and employment numbers saw a further slide in June. The PMI survey showed manufacturers cut jobs yet again, albeit at a quicker pacer than May.
Despite normal life resuming since June 1 when the lockdown was lifted outside containment zones, manufacturing activity could not kick in fully. New orders fell for the third-month running. Also, dearth of labour and raw material remained widespread, while supply chains could not be established, said industry bodies. As a result, firms continued to cut back production midway through the second quarter, the survey said.
The situation was made worse by plunging demand from international markets, which further deteriorated sales trends. Exports had contracted since April when outbound sales had dropped at the quickest pace in over 15 years.The Federation of Indian Exports Organizations expects exports in June to shrink by 12 per cent, down from May’s high 36 per cent. Case in point, India’s biggest overseas markets for merchandise shipments such as the United States, gulf nations and the European Union have been hit hard by the ongoing pandemic.
“Most industry was closed in April and the effect lingered on till May, Difficult to say it at this point but chance of growth looks slim in the short term given the challenges,” said Devendra Pant, chief economist, India Ratings and Research. PMI had already been on a downward curve even before the Covid-19 pandemic hit. After hitting an eight-month high of 55.3 in January, output had fallen to 51.8 in March.
As a result of reduced output, firms continued 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, IHS Markit said.
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.
Experts predict overall industrial production for May—data for which will be released later—will continue to see major contraction.
According to data from the Index of Industrial Production, a collapse in manufacturing sector had led to industrial output falling by 55.5 per cent in April. The PMI survey, however, showed that manufacturers remained optimistic towards the one-year business outlook in June, with sentiment strengthening to a four-month high
Source: Business Standard