All is not well on the manufacturing front, says State Bank of India’s yearly composite index. The index declined sharply in July in comparison with the previous month, falling to 49.7 from 53.2 in June.
The Monthly Index also declined to 46.7 in July from 47.0 in June.
When the composite index is between 46 and 50, it is termed a ‘Low decline’, while anything between 52 and 55 is termed ‘Moderate growth’. The index, which is an indicator for manufacturing activity in the economy, aims to forecast periods of contraction and expansion. SBI has deduced that going forward IIP (index of industrial production) numbers may continue to be even weaker as the Yearly SBI Composite Index for June 2015 had witnessed a decline.
The declining momentum in credit growth is likely to have started having an impact and this is leading to decreasing momentum in IIP growth, according to the report put together by SBI’s economic research team.
The credit growth of all Scheduled Commercial Banks on a year on year basis has continued to decline and reached 9.8 per cent (till June 26, 2015), compared to last year’s growth of 12.8 per cent.
The RBI, in its latest financial stability report, had pointed out that the higher economic growth (7.3 per cent in FY2014-15) seems at odds with low credit growth, lower flow of resources to the commercial sector, low capacity utilisation, subdued IIP growth, and muted corporate performance, among others.
Positive side “On the positive side, the July 2015 SBI index may signal that the deceleration in manufacturing momentum may be bottoming out.
“The government push on infrastructure, defence and renewable power seem to be the three pillars of future growth in the banking sector,” SBI said in a report.