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India's manufacturing PMI at 10-month low in May as new orders dwindle

After falling to a 7-month low in March, manufacturing PMI had improved slightly in April. But as production tumbled in May and finances remained stressed, manufacturing companies again cut jobs. This was the 14th straight month of job losses in a row.

June 01, 2021 / 11:47 AM IST
Economy

Economy

India’s manufacturing activity hit a major speed bump in May after being on the slow road to improvement in April, as the renewed escalation of the (COVID-19) pandemic and subsequent restrictions played spoilsports for factory activity.

According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on June 1, manufacturing PMI stood at a ten-month low of 50.8 in May, down from 55.5 in the previous month of April.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. The May numbers show the sector is standing on the brink of contraction yet again. The slight growth in May was mostly contributed by foreign export orders rather than domestic demand.

After starting 2021 on a stronger footing than it ended 2020, the manufacturing sector has continued to lose growth momentum. While production, new orders and input buying have continued to expand, but growth has stagnated.

“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,” Pollyanna De Lima, Economics Associate Director at IHS Markit and author of the report, said.

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New demand, new work orders and export contracts all marginally increased in May. But it was not enough to push up production or sales by a sustainable margin.

New orders, rose at the slowest pace since August, 2020. According to panel members, demand was suppressed by the COVID-19 crisis. Also, sudden rise in the second wave of theCovid-19 pandemic and difficulties in securing raw materials, PMI survey respondent firms said.

On the other hand, export orders specifically presented a better opportunity to the industry. "Although new export orders also increased at a softer rate, the upturn was solid and outpaced the long-run series trend," the PMI survey said.

But as a result of overall weak order books, while firms scaled up production volumes in May, the pace of expansion was again, the slowest in the past ten-months.

Overall sales grew for the eighth successive month, but softened to a seven-month low.

The PMI survey showed manufacturers cut jobs yet again in March, taking the current sequence of job shedding to 14-straight months. Panellists indicated that the fall stemmed from COVID-19 restrictions related to workforces.

The data for May continued to signal lengthening supplier delivery times, with vendor performance worsening for the third straight month, mostly due to global shortages of raw materials and the COVID-19 pandemic.

As a result of the relative scarcity of raw materials, input costs further rose over the month. The rate of inflation eased to a four-month low, but remained sharp and above its long-run average. Surveyed firms flagged higher aluminium, chemical, copper, plastic and steel prices.

Amid reports of ongoing efforts to protect margins from cost increases, firms lifted their selling prices again in May. The rate of charge inflation was solid, but softened from April.

While the detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown, the PMI survey warned that the current downturn may continue for some time.

"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 year-ahead outlook for output was at a ten-month low, a factor which could hamper business investment and cause further job losses." De Lima said.
Subhayan Chakraborty

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