Orders from overseas grew for the first time since July and helped offset the fall in domestic demand in October as manufacturing activity stood at 49.6, unchanged as compared to the previous month.
This is according to the HSBC India Purchasing Managers’ Index (PMI) that indicates growth if above 50 and contraction if below.
October was the third consecutive month of contraction for the Indian manufacturing sector, reflecting marginal deterioration of business conditions across the country.
Survey participants attributed the fall in production volumes to weaker demand and a difficult economic climate. “Some firms indicated that the cyclone Phailin had also led to fewer numbers of new orders placed,” said HSBC.
However, foreign demand boosted by a weaker rupee led to expansion in export orders. Overall, there was a contraction in new orders. Despite this, there was a rise in work backlogs amid evidence of power cuts.
Inventory levels, too, rose in October while holdings of raw materials and semi-manufactured goods were accumulated for the first time in four months though the growth was marginal.
New hirings showed a marginal growth led by consumer goods manufacturing firms.
Intermediate goods indicated job-shedding.
Sonal Varma, chief economist at Nomura, said that domestic consumption and investment are likely to remain weak due to pro-cyclical fiscal and monetary policies. Exports and agriculture would support growth.
“In this tug of war, growth may not fall much, but nor will it rise substantially, indicating a very prolonged period of sub-par growth,” said Varma.
Adding to the woes, input cost inflation accelerated to a 16-month high and selling prices rose at the fastest pace since February. Survey participants said that weaker rupee had led to higher prices paid for imported raw materials and that additional cost burdens were partly passed on.
“This suggests that the RBI has to continue its staring contest with inflation,” said Leif Eskesen, chief economist for India and ASEAN at HSBC.
Varma said rising inflationary pressures even with a negative output gap suggested a stagflation-type scenario in the economy.
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