This is a worrying sign, said Pollyanna de Lima, principal economist, IHS Markit. She added, “This reflected a mixture of intentional reduction in stocks and shortage of available finance.”
data for the first quarter (April-June, or Q1) of the current fiscal year (2019-20, or FY20), released last month, also had manufacturing
falling to a seven-quarter low of 0.6 per cent. In the fourth quarter of 2018-19, it was 3.1 per cent. In Q1 of 2017-18, it had fallen to 1.7 per cent.
The share of manufacturing in GDP
came down to 15.3 per cent in Q1FY20 from 16.2 per cent in the same period of FY19. Make in India, the government’s flagship programme, plans to raise this to 25 per cent by 2022. But, experts are not sure if this is a feasible target. “I don’t think the share of manufacturing will reach 25 per cent of GDP
by 2022. It has remained stagnant at 15-16 per cent. Unless manufacturing rises much higher than services, its share will not reach the target,” said D K Srivastava, chief policy advisor at EY India.
Growth of manufacturing in the index of industrial production (IIP) was also low — 1.2 per cent — in June, compared to 4.4 per cent in the previous month. The PMI survey noted competitive pressures and challenging market conditions restricted growth. New overseas orders also increased at the slowest rate since April 2018.
“Until manufacturers are willing to loosen the purse strings, it is difficult to foresee a meaningful rebound in production growth,” IHS Markit’s de Lima said.
Subdued sales, domestic and international, also curbed output growth, which was the weakest in a year. Some respondents also reported cash-flow problems and lack of finance. EY’s Srivastava blamed low demand for the situation. “Companies are not utilising their capacities,” he said.
Instead, companies reduced inventories. In the PMI survey, inventories of manufactured goods decreased, taking the current stretch to 25 months. The rate was the quickest since last September. There was, however, some home. The PMI has remained above the 50-point mark for 25 straight months. Producers of goods are also optimistic, with hopes of a pick-up in demand and marketing efforts. Sentiment was at a 16-month high
Firms tried to lower expenses by cutting inputs. This was the first time companies had done this in 15 months; the fall was fastest since mid-2017. Holdings of raw materials and semi-finished items also declined, ending a 17-month-long period of accumulation.
Input costs were at a nine-month high. “August saw an undesirable combination of slowing economic growth and greater cost inflationary pressures,” said de Lima. Output inflation eased as a number of factories refrained from price hikes amid efforts to boost sales.
PMI survey covers around 400 manufacturers in different segments. Employment
also rose only marginally, lower than July. Weak sales prevented companies from filling up vacancies, said experts.