Manufacturing PMI sees steepest contraction

India's manufacturing activities witnessed the sharpest contraction in April due to a plunge in demand and disruptions in supply chains from the lockdown, a private sector survey showed on Monday.

According to the Nikkei Manufacturing Purchasing Managers' Index, or PMI, compiled by IHS Markit, the index plunged to 27.4 in April from 51.8 March. This is the lowest reading since the survey began in March 2005 and the first fall in nearly three years below the 50mark separating growth from contraction.

"After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April. In the latest survey period, record contractions in output, new orders, and employment pointed to a severe deterioration in demand conditions," said Eliot Kerr, economist at IHS Markit.

Generally, the PMI is a widely used economic indicator that gives an insight into business conditions. The survey compiles responses of purchasing managers or executives of 400 companies every month. The aggregate final measure is a seasonally adjusted number on the scale of 0-100, where values above 50 reflect an increased expectation of overall business conditions compared to the previous month, whereas values below 50 indicate a decline.

"There was evidence of unprecedented supplyside disruption, with input delivery times lengthening to the greatest extent since data collection began in March 2005, Eliot Kerr added.

The survey further said that the new orders and output shrinking at the steepest pace since at least early 2005 and factories cutting jobs at the fastest rate in the survey's history, signal a high chance of recession.

The April reading reflects the poor state of economy despite the government's stimulus package of Rs 1.7 lakh crore along with the central bank's measures providing refinancing packages.