Economy

Manufacturing PMI improved to 47.2 in June, but business conditions continue to deteriorate

Our Bureau New Delhi | Updated on July 01, 2020 Published on July 01, 2020

Manufacturing has a share of around 15 per cent in India’s Gross Domestic Product   -  Bloomberg

Factories in India saw some improvement, as the Manufacturing Purchasing Managers’ Index (PMI) rose to 47.2 in June as against 30.8 in May.

Still, as IHS Markit says, business conditions continue to deteriorate amid regional lockdown extensions. This is the global agency that prepares the PMI on the basis of responses from purchasing managers associated with around 400 manufacturers. The panel is stratified by a 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.

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

Woes may prolong

Commenting on the latest survey results, Eliot Kerr, Economist at IHS Markit, said India’s manufacturing sector moved towards stabilisation in June, with both output and new orders contracting at much softer rates than seen in April and May. However, the recent spike in new coronavirus cases and the resulting lockdown extensions have seen demand continue to weaken. “Should case numbers continue rising at their current pace, further lockdown extensions may be imposed, which would likely derail a recovery in economic conditions and prolong the woes of those most severely affected by this crisis,” he said.

The report accompanying the survey result revealed that despite the rise in index, the latest reading pointed to a third successive monthly decline in the health of the manufacturing sector, albeit one that was far softer than that registered in April and May. Contributing to the further deterioration was another sharp contraction in output at the end of the second quarter. Panellists continued to suggest that coronavirus-related restrictions had constrained production capacity. That said, the rate of contraction eased considerably from May and was the softest since an expansion in March.

Export orders decline

Another key factor behind the decline in operating conditions was the further decrease in new business during June. The latest contraction extended the current sequence of falling sales to three months, although the pace of reduction decelerated to the slowest since the lockdown measures were imposed in March. Overall, demand received little support from international markets, with new export orders falling for the fourth month in a row.

Although the rate of decline eased to the softest since March, it remained sharp overall. When explaining the reduction in demand, panellists often cited the Covid pandemic. In line with the continued deterioration in demand conditions, Indian goods producers recorded a further reduction in employment during June. Despite easing from May’s survey record, the rate of workforce contraction remained among the quickest since data collection began in March 2005.

Looking forward, firms remained positive towards the 12-month business, with sentiment strengthening to a four-month high. That said, the degree of optimism remained far weaker than the historical average amid fears of a prolonged economic downturn due to the coronavirus outbreak.

Published on July 01, 2020
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