India's manufacturing sector activities contracted for the first time in 11 months in June as rise in coronavirus cases and strict containment measures adversely impacted demand as well as resulted in job losses.
According to the monthly IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) survey released on July 1, manufacturing PMI stood at 48.1 in June, down from the ten-month low of 50.8 in May.
The index fell below the critical 50.0 mark for the first time since July 2020. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.
The poor domestic demand condition had been held responsible for the poor performance of the sector in the previous month of May. The slight growth in May was mostly contributed by foreign export orders, IHS Markit had said.
As production further tumbled in June and finances remained stressed, manufacturing companies again cut jobs. This was the 15th straight month of job losses in a row.
The latest reading highlighted renewed contractions in factory orders, production, exports and quantities of purchases. Falling new orders, business closures and the COVID-19 crisis triggered a reduction in output among Indian manufacturers, the survey said.
COVID-19 restrictions also curtailed international demand for Indian goods and new export orders decreased for the first time in ten months.
"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," Pollyanna De Lima, Economics Associate Director at IHS Markit, said.
Lima, however, noted that in all cases, rates of contraction were softer than during the first lockdown.
Business confidence was dampened in June by uncertainty over when the pandemic can be brought under control. Companies were at their least optimistic for almost a year. "As a result of subdued optimism, jobs were shed again in June," Lima said.
On the price front, input costs increased further in June, with firms reporting higher prices for chemicals, electronic components, energy, metals and plastics.
Additional cost burdens were again transferred on to clients, with goods producers hiking their fees for the tenth straight month, the survey said.
"Out of the three broad areas of the manufacturing sector monitored by the survey, capital goods was the worst affected area in June. Output here declined at a steep rate due to a sharp fall in sales.
"The sector also saw the fastest contraction in buying levels and was the only to post job shedding," Lima said.
After starting 2021 on a stronger footing than it ended 2020, the manufacturing sector has continued to lose growth momentum. While production, new orders and input buying have continued to expand, but growth has stagnated. The PMI has averaged just 51.5 in the opening quarter of fiscal year 2021/22, the lowest three-month figure since the same period one year ago.
(With PTI inputs)