Manufacturing activity slips in May
PMI fell to 50.8 in May from 55.5 in April, the lowest level since July 2020
India’s factory activity growth slowed significantly in May as an escalation in coronavirus cases whacked new orders and output while scarcity of raw materials drove up input costs, a private sector survey showed on Tuesday. Although daily infection rates have started falling in the past few days there are concerns about underreporting of cases due to a dearth of testing in rural areas. India has already reported around 28 million coronavirus cases and over 300,000 deaths, leading many states to impose restrictions affecting economic activity.
The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI), fell to 50.8 in May, down from 55.5 in April, its lowest since July 2020, as companies observed the slowest rises in new work and output in ten months amid intensification of the Covid-19 crisis.
In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.
The output and new orders sub-indexes fell to their lowest levels since July last year. Some of that meager expansion was driven by producers completing pending projects and backlogs of work declined for the first time in over a year.
“The Indian manufacturing sector is showing increasing signs of strain as the Covid-19 crisis intensifies. Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the slowest rates of increase in ten months. In fact, all indices were down from April,” said Pollyanna De Lima, Economics Associate Director at IHS Markit.
Lima, however, noted that the detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown.
“Growth projections were revised lower, as firms became more worried about the escalation of the pandemic and local restrictions. The overall degree of optimism towards the yearahead outlook for output was at a ten-month low, a factor which could hamper business investment and cause further job losses,” Lima said.
The growth of the manufacturing sector was curbed by the escalation of the pandemic and difficulties in securing raw materials, the survey said.
Concerns surrounding the pandemic restricted business confidence towards the yearahead outlook for production, the survey said.
“Amid a lack of new work, goods producers reduced headcounts again, with the rate of job shedding quickening in May,” Lima said.
The next bi-monthly monetary policy review of the Reserve Bank of India (RBI) is scheduled to be announced on June 4. Experts believe, with the economic outlook remaining uncertain in light of the continuing pandemic, the monetary policy stance of RBI is likely to remain accommodative.
India’s economy contracted by less-than-expected 7.3% in the fiscal year ended March 2021 after growth rate picked up in the fourth quarter.