Manufacturing activity fell to a four-month low in June despite a rise in orders from abroad, according to a private monthly survey.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) slowed to 50.9 in June from 51.6 in May. This is the weakest expansion since February.

A reading above 50 indicates growth while anything below that mark denotes a contraction in production.

“One factor weighing on the PMI reading for June was a softer expansion in new work, the index’s largest sub-component,” said Nikkei in a release. It, however, added that new orders received by consumer goods firms continued to rise strongly, while capital goods producers recovered from May’s contraction.

Overseas demand up Foreign demand for Indian-manufactured goods improved in June, with new export orders up at their quickest pace since October 2016.

Input costs continued to increase. However, the rate of inflation was modest and the weakest since August 2016. Likewise, output charges rose only slightly and at a below-trend pace.

The rollout of the Goods and Services Tax (GST) was also a significant concern for manufacturers.

The survey revealed that less than 13 per cent of the companies signalled a contraction in output due to factors such as challenging economic conditions, the upcoming implementation of the GST Bill and water shortages.

GST impact Worryingly, business optimism fell to a three-month low. The survey also found that while most manufacturers forecast output growth in the coming 12 months, some companies felt that GST implementation would have a negative impact on their businesses.

However, Pollyanna De Lima, Economist at IHS Markit and author of the report was more upbeat. “With the impact of demonetisation largely over and the GST unlikely to substantially derail consumer spending, IHS Markit forecasts real GDP growth to hit 7.3 per cent for 2017-18,” she said.

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