India's manufacturing PMI falls sharply in April 2016

Manufacturing activities in the country were close to stagnation in April against eight-month high growth in March as new orders remained flat, according to a widely-tracked Nikkei purchasing managers’ index (PMI) survey. The survey showed that PMI fell sharply to 50.5 in April from 52.4 in March.

The seasonally-adjusted index is a composite single figure indicator of manufacturing performance. A reading above 50 represents expansion, while one below this level means contraction.

However, April still represented a fourth consecutive month of output growth mainly due to improvements in new export business remaining sustained, although growth was at a six-month low. Manufacturing had last contracted in December at 49.1 points.

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 “A marked slowdown in output expansion during April was caused by growth of new work grounding to a halt,” said Pollyanna De Lima, economist at Markit. The report showed that consumer goods producers fared better than their counterparts producing intermediate and investment goods, who saw a decline in both output and new orders.

Manufacturing employment in India remained broadly unchanged yet again, a trend that has been evident for almost two years, the monthly survey noted. In the previous month of March, the survey had pointed to decreasing backlogs of work and thus spare capacity in the sector had staved off new hiring. 

However, in April the backlogs increased. Where backlogs of work increased, survey members blamed delayed payment from clients as well as shortages of some raw materials for this. Nevertheless, the rate of accumulation was only slight.

On the price front, input cost inflation accelerated to its fastest since May 2015. According to panel members, this was due to a range of raw materials such as metals, chemicals, plastics, paper and food increasing in price.

Part of the additional cost burden was passed on to clients as selling prices rose further. That said, the rate of charge inflation softened marginally since March. “A softer overall increase in output prices suggests a strongly competitive environment, as cost inflation in fact accelerated to a 12 month high.” Lima pointed out.

Figures for China, which came on Sunday showed manufacturing activity in the country expanded in a slower than expected rate in April, raising more doubts about the recent recovery in the world's second-largest economy grappling with a slowdown. The manufacturing PMI came in at 50.1 in April, slightly down from March's 50.2 and below market expectations of 50.3.

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