April manufacturing PMI growth at 8-month-low amid election uncertainty

Uncertainty arising out of the ongoing general elections affected growth in manufacturing activity, which hit an eight-month low in April, showed the widely tracked Nikkei purchasing managers’ index (PMI).

With growth slowing and price pressures easing, there is likelihood of the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) cutting the policy rate for the third successive time in June, said a commentary associated with PMI.

PMI for manufacturing declined from 52.6 in March to 51.8 in April. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

The job situation did not improve much as a majority of companies did not go for additional hiring. The April PMI data indicated that softer increase in new orders restricted growth of output, employment and business sentiment. 

“Although remaining inside expansion territory, growth continued to soften and the fact that employment increased at the weakest pace for over a year suggests that producers are hardly gearing up for a rebound,” said Pollyanna De Lima, Principal Economist at IHS Markit and the author of the report.

When looking at reasons provided by surveyed companies for the slowdown, disruptions because of the elections was a key theme, Lima said, adding that “firms also seem to have adopted a wait-and-see approach on their plans until public policies become clearer upon the formation of a government”.

On the prices front, input cost inflation eased to a 43-month low while the rate of output inflation was marginal and below its long-run average. “With price pressures in the manufacturing economy cooling and growth losing momentum, it’s increasingly likely that the RBI may cut its official rate for a third successive time in June,” Lima said. The next meeting of the MPC is scheduled for June 3-6.

Amid reports of sufficient workforce numbers to cope with existing workload, a vast majority of companies withheld hiring in April.

Aggregate manufacturing employment rose but only fractionally and to the weakest extent in the current 13-month sequence of job creation.

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