The surprise 6.9 per cent growth in the manufacturing sector in the fourth quarter (January-March) of 2021-22 may be a statistical aberration or just a flash in the pan. Sobering micro data has just kicked in that will dampen the enthusiasm of anyone who harboured the hopes of a quick recovery.
The IHS Markit India Manufacturing Purchasing Managers’ Index stood at 50.8 in May 2021 — a 10 month low — compared with 55.5 in April, according to a media statement on Tuesday. A reading above 50 indicates economic expansion.
“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 10 months. In fact, all indices were down from April,” said Pollyanna de Lima, economics associate director at IHS Markit.
Darren Aw, Asia Economist, Capital Economics, said the drop in manufacturing PMI suggested that activity had taken a hit from the second virus wave despite the sector being largely exempt from containment measures.
“And though the outbreak is now subsiding, the recovery is likely to be more gradual than it was after the lifting of restrictions last year. The reading has fallen to its lowest level since July. This suggests that broader weakness in domestic demand has taken a toll on the manufacturing sector.”
Lima, however, noted that the detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector were considerably less severe than during the first lockdown when unprecedented contractions had been recorded.
The growth of the manufacturing sector was curbed by the escalation of the pandemic and difficulties in securing raw materials, the survey said. “Amid a lack of new work, goods producers reduced headcounts again, with the rate of job shedding quickening in May,” Lima said.
On the macroeconomic front, India’s economy contracted less-than-expected 7.3 per cent in the fiscal year ended March 2021 after reporting a positive growth of 1.6 per cent in the fourth quarter.
The next bi-monthly monetary policy review of the Reserve Bank of India (RBI) is scheduled to be announced on June 4.
Experts believe, with the economic outlook remaining uncertain in light of the continuing pandemic, the monetary policy stance of RBI is likely to remain accommodative.
Overseas trends
China's factory activity growth slowed slightly in May as raw materials costs grew at their fastest pace in over a decade, weighing on the output of small and export-oriented firms. The official manufacturing Purchasing Managers' Index (PMI) inched lower to 51 in May, against analyst expectations that it would remain unchanged from April at 51.1.
The PMI in the Eurozone rose to 63.1 in May from April's 62.9, the highest reading since the survey began in June 1997.
