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India's manufacturing growth eases further; slips to 9-mth low

Last Updated: Monday, September 3, 2012 - 11:45

New Delhi: India's manufacturing sector witnessed the weakest growth rate in nine months in August because of shrinking export orders and disruptions caused by power failures, an HSBC survey said.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - eased to 52.8 in August, from 52.9 in July. The index, however has remained above the 50 mark - below which it indicates contraction - for more than three years now.

Electricity outages across India in August caused disruption in production as factories went without power for hours on end. It also led to rise in work backlog.

"The momentum in the manufacturing sector eased further on the back of weak external demand and output disruptions caused by the major power failures in early August," HSBC Chief Economist for India & ASEAN Leif Eskesen said, adding, "power failures also partly contributed to a rise in backlogs of work."

On one hand, power cuts continued to hamper production and on the other, export orders witnessed the second consecutive monthly dip because of "weaker international demand and unfavourable exchange rate conditions", HSBC said.

Besides, while input price rose at a slightly slower pace, output inflation picked up due to higher import costs and taxes.

"With the slowdown partly supply-driven and inflation risks still lingering, these numbers underscore that the room for policy rate cuts is very limited at the moment," Eskesen said.

In its last quarterly monetary policy review, the Reserve Bank left key interest rates unchanged amid fears of deficient monsoon and high inflation.

RBI also lowered the economic growth projection for the current fiscal to 6.5 percent from its earlier estimate of 7.3 percent, stating that the rising government expenditure poses risks to economic stability.

Besides, RBI raised inflation forecast for the fiscal ending March, 2013 to 7 percent, from the earlier projection of 6.5 percent.

Meanwhile, according to official data, the poor showing by the manufacturing sector has pulled down the GDP growth to 5.5 percent in the first quarter of this fiscal.

The growth rate in the first quarter (April-June), according to the data released by the government last Friday, slipped to 5.5 percent, from 8 percent in the same period last fiscal on account of flat growth in manufacturing and quarrying sectors.


First Published: Monday, September 3, 2012 - 11:45
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