New Delhi: India's manufacturing sector witnessed a slowdown in July - the weakest growth rate since November - because of moderation in domestic and export orders amid sagging global economy, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - declined to 52.9 in July, from 55 in June.
Although it showed the weakest growth rate since November, the index has remained above the 50 mark - below which it indicates contraction.
"Manufacturing activity grew at a slower clip in July on the back of power outages and a moderation in new order inflows, with the weak global economic conditions dragging down export orders," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
Going forward, HSBC cautioned that a moderation in output is likely as July orders have decelerated faster than inventory accumulation, suggesting that "more moderate expansion in output will continue in the months ahead".
According to HSBC new export orders fell for the first time since October 2011.
Even as, input and output prices have decelerated to an extent, but inflation remains "above historical averages", HSBC said.
In its quarterly monetary policy review yesterday, the Reserve Bank left key interest rates unchanged on fears of deficient monsoon and high inflation.
It 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.
Electricity outages pan India over the last month also affected production activities as factories were without power, the survey said.
However, the power outages of the last two days of July, which were very severe and impacted nearly half of the country's population, have not been included in the survey.
Considering the power outages in the last two days of July, the manufacturing PMI index would have been hit much harder than reported.
Job creation was recorded at manufacturing firms in India during July, however, the increase was "modest" and at a slower rate than in June, HSBC said.