By Dr. Gyan Pathak
Deceleration in India’s manufacturing sector growth was the worst in the last eight months since February this year, reflecting fading of output, demand, and employment generation in the country. It is particularly ominous, since it’s a festive season and the first month of the busy second-half of the India economy when improvement is generally expected after the first-half of the lean economic season of the financial year.
The Purchasing Manager’s Index (PMI), an economic indicator derived from the survey conducted by S&P Global India Manufacturing PMI, released on November 1, says that growth of several measures subsided in October as demand for certain types of products faded. Indian manufacturing growth decelerated to the slowest on account of decline in growth of total new orders, production, exports, buying levels and stocks purchase. Hiring activity faded and business confidence slipped to a five-month low. Meanwhile, cost pressures intensified.
The seasonally adjusted PMI was 55.5 in October. It may be seen as not bad, since PMI above 50 in interpreted as expansion, while a score below 50 indicates contraction. Though it was also above the long-run average of 53.9, but it is noteworthy that it slipped from 57.5 in September and was the slowest rate of expansion since February, even as it pointed to a good overall operating conditions for the 28th straight month.
The monthly survey has also noted that the growth eased to an eight-month low weighed down by competitive pressures and weak demand at some plants. Granular data highlighted a particularly marked slowdown in the consumer goods sub-sector.
October data has signalled a deceleration in growth in new orders since September. Anecdotal evidence suggested that subdued demand for certain products and fierce competition stymied the earlier upturn. The rate of expansion was the softest in a year with consumer goods especially affected.
As for growth of international sales, the rise was the weakest in October in the last four months. Those firms that experienced an increase in new orders from abroad reported gains from Asia, Europe, the Middle East, and the US.
Despite deceleration in growth, the ongoing increases in new business continued to spur recruitment efforts among goods producers in India. However, with fewer than 4% of companies hiring extra staff and 95% leaving workforce numbers unchanged, the rate of job creation was slight and the slowest since April.
Even though, the October data pointed to sufficient capacity levels at Indian manufacturers, as backlogs of work were little-changed since September. Concurrently, suppliers were often able to deliver inputs in a timely manner, with vendor performance being broadly stable.
Goods producers sought to add to their inventories and meet production schedules by purchasing additional materials in October. The rate of input buying growth was sharp, though the slowest in eight months.
As has been observed since mid-2021, stock trends diverged in October as growth of input inventories contrasted with another fall in holdings of finished goods. The former saw a softer uptick and the latter a quicker reduction.
Price trends were also mixed. Both input costs and output charges increased, but inflation of the former accelerated while factory gate charges rose to a weaker extent. When listing materials that had increased in price, firms mentioned aluminium, chemicals, leather, paper, rubber and steel.
Business sentiment remained firmly inside positive territory, but slipped to a five-month low amid concerns surrounding the path for inflation and demand.
Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence said, “India’s manufacturing sector generated substantial growth in October, despite a challenging global economic environment. Still, insights from surveyed purchasing managers pointed to the deceleration of several measures.”
“The survey’s new orders index slipped to a one-year low,” she said, “as some firms raised concerns about the current demand picture for their products. Consumer goods was behind most of the slowdown, recording considerably softer increases in sales, production, exports, input inventories and buying levels. Growth of all of the aforementioned variables was led by capital goods makers which, with the exception of new orders, registered accelerated rates of expansion.”
“We saw further indication of broadly stable inflationary forces across the manufacturing industry. It appears that a moderate increase in input costs was simply passed on to clients. Nonetheless, qualitative evidence from the future output question revealed an interesting finding, as reports of rising inflation expectations were expected to dent demand and subsequently production growth over the course of the coming 12 months,” she said.
Fall in manufacturing sector activity is indeed a matter of serious concern, at a time when India is desperate need of accelerated level of production for substantial level of employment generation, which in turn may push up demand and production. Falling business confidence, activity, output and high level of unemployment in October does not augur well. (IPA Service)
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