New Delhi: India's manufacturing sector activity contracted for the first time in over four-and-a-half years in August as both output and business orders witnessed a significant decline, an HSBC survey said today.
The HSBC/Markit purchasing managers index for the manufacturing industry stood at 48.5 in August against 50.1 in July, indicating an overall contraction.
The latest index reading was the lowest in over four-and-a-half years and the first sub-50.0 reading since March 2009.
GDP growth
The latest PMI reading comes on the heels of the slowest economic growth of 4.4 per cent for the April-June quarter, the lowest in the past several years.
“Manufacturing activity contracted in August for the first time since March 2009. This was led by a decline in new orders, especially export orders,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.
Since May, the index barely managed to remain above the crucial 50 mark that divides growth from contraction. But business conditions in the manufacturing sector deteriorated during August for the first time in over four years, with both output and new orders falling at faster rates.
New orders
According to HSBC, amid reports of fragile economic conditions and subdued client demand, new orders fell in August. Moreover, new businesses from abroad also declined, ending an 11-month sequence of growth.
The report further noted that input and output price inflation slowed despite the weakening of the currency, which likely reflect the softening demand conditions and, therefore, declining pricing power.
“Notwithstanding the weak growth backdrop, the RBI will likely keep its liquidity tightening measures in place for a while still to help contain the depreciation of the currency.
Combined with the heightened macro-economic uncertainty, this will continue to weigh on growth in coming months,” Eskesen added.
Meanwhile, the rupee had touched an all-time low of 68.80 to dollar on August 28 and is currently hovering around the 66/USD mark in a highly volatile trade.
