Local lockdowns affected industrial activities as Manufacturing Purchasing Managers’ Index (PMI) slipped to 46 in July from 47.2 in June.

Manufacturing has a share of around 15 per cent in India’s Gross Domestic Products (GDP). Despite low share, it is considered to be giving maximum employment— directly or indirectly.

The health of the manufacturing sector declined at slightly quicker pace, says IHS Markit. One of reasons could be businesses facing lockdown extension in some parts of the country. IHS Markit tabulates PMI on the basis of responses from purchasing managers associated with around 400 manufacturers. The panel is stratified by detailed sector and company workforce size, based on contributions to GDP. Survey responses are collected in the second half of each month and indicate the direction of change compared to the previous month. The index is the sum of the percentage of ‘higher’ responses and half the percentage of ‘unchanged’ responses. The indices vary between 0 and 100, with a reading above 50 indicating an overall increase compared to the previous month, and below 50 an overall decrease.

Commenting on the latest survey results, Eliot Kerr, Economist at IHS Markit, said that this data shed more light on the state of economic conditions in one of the countries, worst affected by the Covid-19 pandemic. The survey results showed the pace of declines picking up in the key indices of output and new orders, undermining the trend towards stabilisation seen over the past two months.

“Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won't see a pick-up in activity until infection rates are quelled and restrictions can be further removed. However, on a more positive note, firms remained optimistic, with confidence towards future activity continuing to strengthen during July,” he said.

According to the survey results, output contracted at a slightly faster pace than in June, as demand conditions remained subdued with some businesses still closed amid lockdown extensions. Firms responded by cutting both staff numbers and purchasing activity. However, despite the ongoing negative impact of the coronavirus disease 2019, sentiment towards future activity improved for the second month running.

The survey pointed out that the downturn was partially driven by a further contraction in output. Although far softer than recorded in April and May, the rate of reduction accelerated from June and was sharp overall. Anecdotal evidence indicated that firms pared down production in line with weaker demand conditions. Subdued demand was evidenced by another marked decrease in new orders placed with manufacturers during July. Similar to the trend for output, the pace of decline accelerated from June, but remained slower than at the height of the current crisis.

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