Reading significantly lower than 59.9 seen in June

Manufacturing activity in July slowed to 47.9, the lowest level since February 2009, according to the Nikkei Manufacturing Purchasing Managers’ Index, due almost entirely to the introduction of the Goods and Services Tax on July 1.

The reading was significantly lower than the 59.9 seen in June. A score above 50 implies an expansion of activity while one below 50 denotes a contraction.

‘GST weighs heavily’

“PMI survey data indicated that the introduction of the goods & services tax (GST) weighed heavily on the Indian manufacturing industry in July,” the report said. “New orders and output decreased for the first time since the demonetisation-related downturn recorded in December last year, with rates of contraction the steepest since February 2009 in both cases.”

“According to Indian manufacturers, higher tax rates sparked greater cost burdens in July,” the report added. “However, the pace at which input costs rose was moderate and much weaker than its long-run average.”

The report also said that the 12-month outlook for output remained positive in July due to companies’ expectation that greater clarity on GST would bolster growth. “The downturn was broad-based across all sub-sectors covered by the survey, with output scaled back among firms in the consumer, intermediate and investment goods categories amid falling order books,” Pollyanna De Lima, principal economist, IHS Markit and the report’s author, said.