Economy

Manufacturing shrinks for third straight month, says HSBC index

Our Bureau Mumbai | Updated on November 23, 2017 Published on November 01, 2013

Inflation still a worry; RBI may keep up hawkish stance

In the backdrop of weak growth due to soft domestic demand conditions, HSBC’s manufacturing purchasing managers’ index for India remained unchanged in October, staying below 50 for the third consecutive month.

The index in October was at September’s level of 49.6.

The contraction in activity was led by fall in output and new orders, although export orders picked up.

According to HSBC’s report “With export orders picking up, this (sub-50 PMI reading) is an indication that domestic demand is the main source of weakness.

“More worryingly, despite weak growth, inflation pressures firmed as the pass-through from the weaker currency continues to play out. This suggests that the RBI has to continue to keep up its inflation guard.”

The report said quantity of purchases was scaled back further and weak demand led to an accumulation in stocks of purchases and stocks of finished goods. Further, backlog of work rose due to power shortages hampering output capacity.

Meanwhile, supplier delivery timeliness worsened, reportedly due to low stock levels with suppliers. However, employment rose. Input prices rose due to higher import costs and firms decided to pass on this additional cost burden on to output prices.

HSBC observed that challenging domestic macroeconomic conditions continue to weigh on the manufacturing sector. In addition, the sector is also saddled with other issues such as poor supply of power, curtailing operating capacity.

Further, despite the growth slowdown, inflation continues to accelerate due to higher imported inflation and administrative fuel price increases.

“The central bank was right to retain its hawkish monetary policy stance this week. Looking ahead, the RBI is likely to maintain its hawkish stance to anchor inflation expectations. Achieving lower and more stable levels of inflation is critical to revive growth,” the report said.

A gradual recovery in external demand, higher agricultural output thanks to better monsoons and improvements in electricity supply due to coal imports could provide a slight lift to growth in coming months.

“For a firmer recovery to take hold, however, we need to wait for the many stalled investment projects to break ground,” the report said.

>beena.parmar@thehindu.co.in

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Published on November 01, 2013
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