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The manufacturing sector saw growth contract for the first time in 25 months in December, mainly due to falling new orders and the Chennai floods, a business survey released on Monday showed. The Nikkei India Manufacturing PMI, a composite single figure indicator of manufacturing performance, dipped from 50.3 in November to 49.1 in December, according to the survey compiled by Markit.
This is the first time since October 2013 that the manufacturing Purchasing Managers’ Index (PMI) has come below 50, the point that separates growth from contraction.
Incessant rainfall in Chennai in December impacted the sector, with falling new work forcing companies to scale back output at the sharpest pace since 2009, the Survey report said.
Consumer goods bucked the sub-sector trend and was the only category to see business improve in December.
Conversely, incoming new work and output fell in both the intermediate and investment goods market groups.
Commenting on the data, Pollyanna De Lima, Economist at Markit, said India’s manufacturing sector took a turn for the worse at the year end, with already gloomy internal demand further hampered by floods in the South.
“Ending a 25-month sequence of growth, production plummeted in December. Such was the … decline that the rate of reduction was the sharpest since the financial crisis,” she noted.
Following the Fed rate hike and expectations of further increases, more currency weakness is anticipated, adding strain to businesses’ dollar-priced debt and import costs, Lima added.
Different take Aditi Nayar, Senior Economist at credit rating agency ICRA Ltd, told BusinessLine that the extrapolation of the PMI readings to wider gauges of economic activity should be undertaken with caution, given the survey-based nature and the small sample of the PMI, which enables a minimal reporting lag.
For instance, production at Coal India recorded robust double-digit growth in both year-on-year and month-on-month terms in December 2015, in contrast to the gloomy trend revealed by the PMI, Nayar said.
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