MANUFACTURING PMI AT 4-MONTH LOW

Down to 51.8 in March on drying export orders, weak demand

Growth in the manufacturing sector fell to a four-month low in March, with export orders crashing and domestic demand rising marginally, said a monthly survey released on Wednesday.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) stood at 51.8 in March, after February’s 54.5 — much below the eight-year high of 55.3 in January. In PMI parlance, a figure above 50 means expansion, while a score below that denotes contraction.

The beleaguered sector had last contracted in October, when the index fell to a two-year low of 50.6. However, official data shows contraction has remained entrenched in the sector. Experts say the 21-day lockdown and its impact on business could be a storm too strong for the sector to weather in April.

India’s overall industrial production rose 2 per cent in January. However, some economists see an increase in core sector output as a sign of comeback in terms of factory output. Core sector industries expanded 5.5 per cent in February, up from 1.4 per cent in January. However, this was before the lockdown started.

According to the PMI, manufacturing production in March increased at a much more subtle pace than February, as companies struggled to manage the fallout of order cancellations and unfavourable market conditions.

“The Indian manufacturing sector remained relatively sheltered from the negative impact of the global coronavirus outbreak in March. However, there were pockets of disruption and a clear onset of fear among firms,” said Pollyanna de Lima, principal economist at IHS Markit.

The data for March showed that exports contributed to the expansion in total sales. However, new orders rose at a much lower pace, given the logistical challenges global procurers had to deal with.

However, foreign orders expanded for the 29th month in a row, according to the survey. As of end-2019, manufacturers started catering to overseas demand again, to make up for the lax domestic demand.

However, subdued sentiment because of the virus outbreak has restricted hiring. Hiring growth has been weakest in the last four months. In November, the survey had noted massive lay-offs.

Signs of supply-side disruption also crept into the manufacturing sector in March, with vendor performance deteriorating for the first time since October. Anecdotal evidence pointed to the delays being caused by shortages at some suppliers. However, the overall lengthening in average lead time was marginal.

While average cost burdens increased for the fifth straight month, inflation was moderate — one that was negligible by historical standards. Input goods like chemicals, food, metals, paper, plastics and textiles — mostly from China — continued to get costlier as Chinese factories started reopening only towards the end of March.

On the other hand, charge inflation continued to rise, but also moderated as compared to February. Higher output prices have been a trend in the manufacturing PMI survey for over a year, it noted.

Business sentiment remained under pressure, due to uncertainty over recovery in domestic demand. Positivity hit its joint-weakest level since the PMI series’ inception in April 2012 (alongside April 2015), Markit Economics believes.

It has warned of grave times ahead. “Should the trajectory of injections continue in the same vein, the Indian manufacturing sector can expect a much sharper negative impact in the coming months,” said Lima, author of the report.