India manufacturing growth at 7-month low in September

October 1, 2015, 6:52 am

India’s manufacturing sector output slipped to a seven-month low of 51.2 in September, as order flow turned sluggish amid “difficult economic climate”, a Nikkei survey said today.

The Nikkei India Manufacturing PMI — a composite monthly indicator of manufacturing performance — stood at 51.2 in September, down from 52.3 in August.

A figure above 50 represents expansion while one below that level means contraction.

“Despite having been supported by sustained increases in new work, growth of Indian manufacturing production in September was weighed down by a difficult economic climate,” Pollyanna De Lima, Economist at Markit said.

According to the survey, PMI was weighed down by slower increases in new orders and output as growth of new work moderated to the weakest since June, reflecting challenging economic conditions.

Sluggish rise in new business inflows and a cautious approach to costs reportedly led Indian manufacturers to shed jobs in September.

“Slower increases in new business inflows have hindered firms’ ability to recruit. The sector’s labour market was squeezed in September as companies attempted to minimize operating costs,” Lima said.

On prices front, the report said that input costs eased for the second consecutive month and Indian manufacturers passed lower input costs on to clients.

“Goods producers benefited from a downswing in commodity prices. Input costs decreased for the second month running in September, a situation not seen since the financial crisis.

“This provided firms with more room for price negotiation and selling prices were lowered on an average, improving manufacturers’ competitiveness,” Lima added.

Meanwhile, India’s Central Bank Governor Raghuram Rajan, on Tuesday, effected a more-than-expected interest rate cut of half a per cent to boost the economy.

The Central Bank has also lowered its economic growth forecast for the current fiscal to 7.4 per cent from its previous projection of 7.6 per cent.

The April-June quarter GDP slipped to 7 per cent from 7.5 per cent in the preceding quarter.

A year after Indian Prime Minister Modi’s landslide election victory, financial markets have given him a positive report card though enthusiasm is cooling.

With opposition parties hindering Modi’s economic push in recent months, investors are reassessing the outlook for Indian assets.

Policy pre-requisites for corporate earnings growth are being ignored, says Mihir Sharma, editor at Indian daily Business Standard.

“Investors, especially those who invest in real assets on the ground, may be willing to overlook any number of short- or medium-term obstacles if they were convinced that they could participate in the long-term India growth story. But this depends crucially on trust: trust in a secure contracting, regulatory and tax environment,” writes Sharma.

“But this crucial prerequisite is not even on the government’s agenda. It is not a coincidence that India has, for the first time in a decade, shown its steepest decline in a decade over the last year in AT Kearney’s FDI confidence index, dropping out of the top 10 for the first time since 2002. Narendra Modi is running out of time and goodwill; his government needs to focus more,” he adds.

Source: Agencies