The Nikkei Markit India Manufacturing Purchasing Managers’ Index (PMI) dropped to 46 in July from 47.2 in June, pointing to a marked deterioration in business conditions across the Indian manufacturing sector, the report said.
“The survey results showed a re-acceleration of declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months,” said Eliot Kerr, economist at IHS Markit.
The developments were in line with expectations as the continued rise in Covid-19 cases across states led to multiple localised lockdowns through July, disrupting business activity.
Pegging the output contraction on subdued demand, the report said, “Demand conditions remained subdued with some businesses still closed amid lockdown extensions. Firms responded by cutting both staff numbers and purchasing activity.”
Further, Kerr does not expect conditions to improve until infection rates are brought under control and lockdowns can be lifted. “Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won’t see a pick-up in activity until infection rates are quelled and restrictions can be further removed.”
India’s manufacturing activity took a severe hit in April when the PMI dropped to 27.4, after which it climbed up to 30.8 in May and almost reached the 50-point mark in June, which separates expansion from contraction.
In terms of exports, a further contraction in new export orders weighed down aggregate demand, the report said. However, the latest reduction in exports was the softest for four months, it added.
Indicating further supply-side disruptions, suppliers’ delivery times continued to lengthen even as goods producers pared their purchasing activity in July amid softer inflows of new orders, the report said.
Manufacturers’ input costs continued to decline through July, albeit at a slower pace than the previous four months. This indicated that subdued demand for most goods more than offset the inflationary effects of shortages in some raw materials, it said.
Contrary to prevailing conditions, manufacturers were increasingly optimistic regarding future activity, according to the report. Sentiment towards the 12-month business outlook improved for the second month in a row to reach a five-month high, however, the degree of positivity was still well below the historical average, it said.