The nationwide lockdown in April, coupled with a crash in export orders led to unprecedented contraction in manufacturing output, said the monthly Nikkei India Manufacturing Purchasing Managers’ Index (PMI) survey released on Monday.
On a worrying note, the survey pointed out that reduced demand led to new businesses collapsing at a record pace in April, while firms sharply pared their staff numbers.
Manufacturing PMI stood at just 27.4 in April, showing the sharpest deterioration in business conditions across the sector since data collection began over 15 years ago. In PMI parlance, a figure above 50 means expansion, while a score below that denotes contraction. PMI had already been on a downward curve, registering 51.8 in March, much below the eight-year high of 55.3 in January.
Despite industrial activity being partially opened after April 20, manufacturing activity could not resume fully as lack of labour and raw materials remained widespread while supply chains could not be established, industry bodies said. “After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April,” said Elliot Kerr, economist at IHS Markit.
Tough situation
India’s overall industrial production rebounded in February to a seven-month high of 4.5 per cent, up from January’s 2 per cent. Figures for March, set to be released next week are expected to be slightly hit since lockdown began late in the month, on March 25. But it can take a bad turn given how the output of the 8-core sectors of the economy saw a record contraction of 6.5 per cent in March.
However in April, the PMI survey pointed out widespread business closures amid demand conditions remaining severely hampered. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey's history, far outpacing that seen during the global financial crisis.
The data for April showed that exports did not boost output as new orders from foreign shores tumbled. Foreign sales had fallen in March for the first time since October 2017. But till then, foreign orders expanded for the 29th month in a row. As of end-2019, manufacturers started catering to overseas demand again, to make up for the lax domestic demand. In April, the rate of contraction in exports has sharply risen and outbound sales dropped at the quickest pace in over 15 years, the survey noted.
This all boiled down to manufacturers drastically cut back staff numbers in April. The reduction in employment was the quickest in the survey's history. The PMI survey had captured incidences of major lay-offs in November and and March, before this.
Supply side challenges
Signs of supply-side disruption also intensified in April, with input delivery times lengthening markedly. In fact, the result pointed to the steepest deterioration in vendor performance since data collection began in 2005.
After increasing for the past five months, average cost burdens nosedived to their lowest levels ever as demand plummeted. On the other hand, charge inflation dropped as manufacturers got room to decrease their prices at the start of the second quarter. Higher output prices have been a trend in the manufacturing PMI survey for over a year till now.
Finally, while business sentiment remained under pressure, outlook for the next 12-months ticked up from March's recent low on hopes that demand will rebound once the COVID-19 threat has diminished and lockdown restrictions eased. That said, optimism remained relatively mute.