India’s factory production lost momentum in June as the Manufacturing Purchasing Managers’ Index (PMI) slowed down to 52.1 in June, as against 52.7 of May.
Also read:Manufacturing shows strongest growth in 3 months, PMI rises to 52.7
This index is prepared on the basis of a survey which is conducted among purchasing executives in over 400 companies. These companies are divided into 8 broad categories: basic metals, chemicals and plastics, electrical and optical, food drink, mechanical engineering, textiles and clothing, timber and paper, and transport.
An index over 50 shows expansion, while below 50 mean contraction.
It is prepared by IHS Markit and released along with a detailed report. This index is widely quoted to explain the latest industrial situation and known as the IHS Markit India Manufacturing PMI.
The June 2019 data were collected 12-24 June 2019.
‘Slight setback’
Pollyanna de Lima, Principal Economist at IHS Markit, said that the PMI data highlighted a slight setback in the Indian manufacturing sector during June. Gauges of factory orders, production, employment and exports remained inside the growth territory, but the rates of expansion softened in all cases as domestic and international demand showed some signs of fading.
Upbeat growth projections continued to underpin job creation and the stockpiling of inputs, but cracks appeared in the form of a softer rise in employment and waning optimism.
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“A further decline in unfinished business points to excess capacity among goods producers, meaning that job creation may come to a halt in the near term should demand growth fail to revive. Firms tried to boost sales by offering price discounts for their goods, considering subdued rises in cost burdens. Tamed cost inflation may assist competitive pricing and lift demand to a meaningful extent as we head into the second half of 2019," she said.
All eyes on the Budget
This report, which comes four days before the presentation of General Budget for 2019-20 , shows the pressing need for a comprehensive package to boost investment and consumption demand.
It is expected that this budget might give relief to remaining one per cent companies which are still paying corporate tax at the rate of 30 per cent, along with cess and surcharge. Corporate tax rate for other 99 per cent is 25 per cent plus cess and surcharge.
According to the report, the manufacturing sector lost growth momentum in June, following an acceleration in May.
A softer increase in new work intakes translated into slower rises in output and employment, while the upturn in quantities of purchases strengthened. The June data continued to show only a moderate increase in input costs, which in turn, supported another round of selling charges discounting.
Positive sentiment
Consumer goods was the key source of growth, where robust increases in sales, output and employment were registered.
The report recorded modest expansions in production and new work was noted in the intermediate goods category, but then, jobs had stagnated. At the same time, operating conditions in the capital goods sector were broadly unchanged, the report mentioned.
Meanwhile, according to survey, the good news is that manufacturers remained upbeat about growth prospects in June, with marketing initiatives, stable political conditions and forecasts of a pick-up in demand underpinning the positive sentiment.
However, the degree of optimism weakened slightly from that recorded in May.