India manufacturers decelerate in ninth month of expansion

Posted on October 3, 2016

Expansion in India’s manufacturing sector softened in September as the country’s factories enjoyed their ninth straight month of activity growth.

The Nikkei/Markit manufacturing purchasing managers’ index came in at 52.1 in September, down half a percentage point from August but still well above the 50-point line separating growth from contraction.

As in other manufacturing gauges for the region released today, export orders rose markedly last month for Indian manufacturers – at the quickest rate in 14 months. However, companies also reported that growth in new work had been partially offset by strong competition for it.

Output also continued to rise, but at a slower pace, while purchasing costs rose an an accelerated rate that Markit nonetheless characterised as “weak compared to its long-run trend.”

Pollyanna De Lima, the markit economist who compiles the gauge, said:

Although inflation rates edged higher, these remain weak by historical standards and indicate that we may still see the RBI loosening monetary policy in 2016.

Shilan Shah, India economist with Capital Economics, said the latest figure was a reminder that local factories faced continued headwinds despite progress with reforms, with commercial banks reluctant to trim lending rates and spur credit growth:

Prospects for manufacturers also depend on the government’s reform agenda. Sentiment has been boosted by the passage of the long-awaited Goods and Services Tax (GST) in August. Once implemented, the GST should help to ease complexities in the domestic tax system and boost domestic trade.

However, there are still other structural constraints. High on the list of priorities is pushing through measures to ease land acquisition laws and increase the efficiency of the labour market. But political opposition means that implementing reform in these areas is likely to be even more difficult than was the case with the GST. Given this, a sustained pick-up in manufacturing activity seems unlikely.

You must be logged in to post a comment Login