Production process contracts for first time in 11 months: PMI survey – Instances of India

NEW DELHI: Activity in the country’s manufacturing sector contracted for the first time in 11 months in June as the localised lockdowns against the backdrop of the second wave of Covid-19 hurt demand, a survey showed on Thursday.
Registering 48.1 in June, below May’s 50.8, the IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) was below the critical no-change mark of 50 for the first time since July 2020.
The latest results highlighted renewed contractions in factory orders, production, exports and quantities of purchases. With business optimism fading over the month, job shedding continued, the survey results showed.
The PMI averaged 51.5 in the opening quarter of 2021-22, the lowest three-month figure since the same period one year ago.
Several economists, agencies and the Reserve Bank of India (RBI) are of the view that impact of the second wave would be muted and confined to the first quarter of the current financial year, which ends in March 2022, with possibility of some spillover to July. Majority of them have reduced GDP growth projections from strong double-digit expansion projected earlier for 2021-22, citing the impact of the second Covid-19 wave.
The survey is compiled from responses from questionnaires sent to purchasing managers of about 400 manufacturers.
“The intensification of the Covid-19 crisis in India had a detrimental impact on the manufacturing economy. Growth of new orders, production, exports and input purchasing was interrupted in June as containment measures aimed at bringing the pandemic under control restrained demand,” said Pollyanna De Lima, economics associate director at IHS Markit.
“In all cases, however, rates of contraction were softer than during the first lockdown. Companies became increasingly worried about when the pandemic will end, which resulted in downward revisions to output growth projections. As a result of subdued optimism, jobs were shed again in June,” said De Lima.
Some economists said the PMI data was at variance with other data, which displayed some improvement.
“The dip in the June PMI is somewhat at odds with the mostly positive high frequency data available so far. Following the phased unlocking, GST e-way bills, vehicle registration, electricity demand and petrol consumption have all reported a sequential improvement over May 2021 and a YoY growth in June 2021. While diesel consumption has contracted on a year-on-year basis in June 2021, this is likely to be on account of high prices diverting some freight to the railways,” said Aditi Nayar, principal economist at ratings agency ICRA.
The survey showed that the stretch of new order growth that started in August 2020 came to an end in June, with firms linking the deterioration in demand to the pandemic. Despite being solid, the pace of contraction was much softer than those registered at the onset of Covid-19 last year. Covid-19 restrictions also curtailed international demand for Indian goods. New export orders decreased for the first time in ten months, albeit modestly, the survey showed.

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