India’s manufacturing sector activity managed to remain fractionally above the crucial 50 mark in July below which indicates contraction as there was a significant decline in new business orders, an HSBC survey said today.

The HSBC/Markit purchasing managers’ index for the manufacturing industry stood at 50.1 in July, slightly more than 50.3 in June, indicating a broad stagnation of manufacturing operating conditions in India.

For the last three months, the index is barely managing to remain above the crucial 50 mark that divides growth from contraction, but has held above the mark for over four years now.

According to HSBC, the output in India’s manufacturing sector fell for the third consecutive month in July, amid evidence of falling new orders, tough economic conditions and raw material shortages.

“Activity in the manufacturing sector was broadly flat in July. Output fell by less, but order flows weakened led by slower growth in export orders,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.

Slowest pace of increase in purchasing activity

The survey further noted that the pace of increase in the purchasing activity in the Indian manufacturing sector was marginal and the slowest in the 52-month expansionary sequence (over four year low).

Reflecting weak demand conditions there was a decline in new business orders; however, export orders rose for the eleventh consecutive month.

Inflationary pressures on output

On price rise HSBC said inflationary pressures persisted in July as output prices rose at the fastest rate since February.

“Inflation pressures firmed for both input and output prices, partly on the back of higher imported inflation due to the weaker currency,” Eskesen said.

The rupee has depreciated by more than 13 per cent since May this year and is currently hovering around the Rs 60/USD level.

“The data suggests that the RBI will likely have to keep policy rates on hold for a while given lingering inflation risks and that the recently introduced currency stabilisation measures will not be lifted anytime soon,” Eskesen added.

The RBI, in its First Quarter Review of Monetary Policy on July 30, kept all the key interest rates unchanged.

Meanwhile, the July HSBC data highlighted that there was a further expansion of employment levels in the Indian manufacturing sector.

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