India’s factory growth eases in July on weaker demand

The health of the manufacturing sector was the 2nd strongest after June.

New Delhi: The country’s manufacturing sector activity moderated in July amid softer increase in output, new orders and employment, says a monthly survey.

The Nikkei India Manufacturing Purchasing Managers Index (PMI) stood at 52.3 in July, down from 53.1 in June.
This is the 12th consecutive month that the manufacturing PMI remained above the 50-point mark. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

“The recent improvement in Indian manufacturing conditions lost some impetus in July, with softer rises in output, new orders and employment,” said Aashna Dodhia, Economist at IHS Markit and author of the report. Although modest, the latest improvement in the health of the manufacturing sector was the second-strongest after June.

“We must not lose sight of the fact that the sector continued on a steady expansionary path, as production and new business rose at marked rates. Moreover, July survey data pointed to strong demand from both domestic and international sources,” Dodhia said. Although softening slightly since June, both domestic and export orders rose for the ninth consecutive month in July.

Reflecting sustained periods of growth in output and new orders, firms were encouraged to raise their staffing levels for the fourth successive month in July, the survey added. Meanwhile, business sentiment strengthened to a three-month high, but remained below the historical average as some respondents expressed fears of a potential slowdown in the year ahead.

“Indeed, IHS Markit recently downgraded its forecast of real GDP growth to 7.1% in (FY) 2018, reflecting rising headwinds to expansion, including high oil prices, large capital outflows from emerging markets, and tighter domestic monetary policy,” Dodhia said.

MSP to increase food prices

  • The increase in MSPs for kharif crops, which is much larger than the average increase seen in the past few years, will have a direct impact on food inflation and second round effects on headline inflation, RBI said in its third bi-monthly policy review.
  • Excluding the HRA impact, the CPI-based inflation is projected at 4.4 per cent in Q2, 4.7-4.8% in H2 and 5 %, it added.
  • On MSP hike, Reserve Bank of India said there is a considerable uncertainty and the exact impact would depend on the nature and scale of the government’s procurement operations.

RBI pegs retail inflation at 4.8% for 2nd half of FY19

  • The Reserve Bank on Wednesday pegged retail inflation at 4.8% for the second half of current fiscal expecting increase in food prices due to hike in minimum support price (MSP).
  • For the July-September quarter, it has projected inflation to be at 4.6%.
  • RBI made the projections in its third monetary policy review for the current fiscal.
  • Retail inflation has been projected to rise further to 5 per cent in the first quarter of next financial year 2019-20.
  • The inflation outlook is likely to be shaped by several factors. First, the central government has decided to fix the minimum support prices (MSPs) of at least 150% of the cost of production for all kharif crops for the sowing season of 2018-19.
  • Based on an assessment…, inflation is projected at 4.6% in Q2, 4.8% in second half (H2) of 2018-19 and 5% in Q1:2019-20, with risks evenly balanced,” RBI said.

(With inputs from PTI)

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