Manufacturing activity in October was more subdued than the level seen in the previous month due to a slowdown in new orders caused by the implementation of the Goods and Services Tax, according to a private sector survey.
The Nikkei India Manufacturing Purchasing Managers’ Index reading for October came in at 50.3, declining from 51.2 in September.
A reading above 50 indicates an expansion while one below 50 denotes a contraction in activity. “Growth in India’s manufacturing sector lost momentum in October,” the report said. “Output rose only fractionally and new orders stagnated over the month. In response to subdued demand conditions, both purchasing activity and pre-production inventories decreased.”
‘New business stagnates’
“The downward movement in the headline index was partly driven by a stagnation in new business,” the report added. “Panellists linked subdued demand conditions to negative impacts of GST.”
The report also noted that output growth slowed to the lowest in the current three-month period of rising production, saying that firms that witnessed an increase in output pegged this to stronger demand, while those that saw a decrease in output blamed the negative effects of GST.
“India’s manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October,” Aashna Dodhia, economist, IHS Markit, and the report’s author, wrote. “Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand... Further, overseas demand for Indian goods dipped to the greatest extent since September 2013.”
She also highlighted a positive aspect, saying that the labour market continued to improve, with manufacturers further increasing staffing, and October’s activity similar to the pace seen in September’s 59-month high.