The Nikkei India Manufacturing Purchasing Managers’ Index fell from 52.7 in May to 52.1 in June remaining above the 50-point mark that separates expansion from contraction.
“Rates of expansion softened in all cases as domestic and international demand showed some signs of fading,” said Pollyanna De Lima, principal economist at IHS Markit and author of the report adding that lower levels of unfinished work with manufacturers indicated excess capacity which may mean employment generation in the sector could come to a halt in the short run if there is no clear revival in growth.
Slow growth is in line with the RBI’s growth expectations which it revised downwards in June to 6.4%-6.7% growth for the first half of the fiscal with 7.2%-7.5% growth in the second half leading to overall GDP growth of 7%.
The survey said that consumer goods were a key source of growth in the month and witnessed strong growth in output, sales and employment. Capital goods however did not see any significant rise in output while intermediate goods saw a modest expansion in new orders and output but no growth in employment.
Growth in new export orders which was a bright spot in May slowed to the second lowest level in a year with a similar trend of consumer goods showing a sharp expansion but only marginal increases in order in intermediate and capital goods.
Low inflation levels were key to maintaining a growth trajectory allowing firms to offer discounts because of low inflation in input costs.
“Firms tried to boost sales by offering price discounts for their goods, in light of subdued rises in cost burdens. Tamed cost inflation may assist competitive pricing and lift demand to a meaningful extent as we head into the second half of 2019,” said De Lima.
Firms remained upbeat about growth prospects in June expecting a pickup in demand because of stable political conditions and their own marketing initiatives, according to the survey.