March manufacturing activity hits 7-month low, PMI at 55.4

picture credits- business standard

In a blow to Indian economic growth, India’s manufacturing activity grew at its weakest pace in seven months in March. This comes after renewed stringent lockdowns placed in the economy to curtail a resurgence in COVID-19 cases, in which Maharashtra seems to have been worst affected.

A private survey has shown that the stringent, tenacious lockdowns have dampened domestic demand and output which has forced firms to cut headcount again.

In a recent report by Care Ratings, it has been stated that Maharashtra’s radical lockdown will dent the national economy and will have an economic impact of Rs. 40,000 crores.

Complied by HIS Markit, the Nikkei Manufacturing Purchasing Managers’ Index, declined to a seven-month low of 55.4 in March. The PMI fell from February’s 57.5, but remained above the 50-level, separating growth from contraction for an eighth straight month.

A PMI  reading under 50 represents a contraction, and a reading at 50 represents no change. A value greater than 50 represents greater level of change and growth.

Despite an increase in exports by a humongous 58.23% and growth in imports by 52.9%, a sub-index tracking overall demand declined to its lowest since August 2020. Though, the month of March showed positive export jump, the data additionally showed that exports during April-March 2020-21, dipped by 7.4 per cent to $290.18 billion compared to $313.36 billion in 2019-20. Output also grew at its weakest pace in seven months.

Pollyanna De Lima, economics associate director at HIS Markit stated that “Survey participants indicated that demand growth was constrained by the escalation of the COVID-19 pandemic, while the rise in input buying was curtailed by an intensification of cost pressures,”. This also comes after Moody’s analyst stated that India’s inflation was uncomfortably high which had an adverse effect on the prices in the economy which led to demand contraction.

She added that “With COVID-19 restrictions expanded and lockdown measures re-introduced in many States, Indian manufacturers look set to experience a challenging month in April,”

Although it has been quite intensely reported that many rating agencies like IMF, Moody’s, Oxford, etc. had predicted the Asia’s third-largest economy to grow at a faster pace this fiscal year than previously thought. But India’s recent reports of economic growth cast a dark shadow at the future projections. According to a Reuters poll published last week, a significant majority of economists said a surge in coronavirus cases was the biggest risk to the outlook.

After a year-long spree of job cuts, factories intensified the rate of lay-offs to its strongest in six months in March.

Additionally it has been reported that both input and output prices have increased at a slower pace in the month of march, signaling overall inflation that accelerated to a three-month high in February, as has been reported by Moody’s, might ease and stay within the RBI’s positive inflation target of 2-6%.

That would immensely help the central bank maintain its accommodative policy stance to massively support the economic growth. As it has been reported after the February high inflation report, RBI was faced with a tradeoff between managing inflation and maintaining an accommodative stance. Thus, projections of easing of inflation in the economy, might put RBI’s conflicting choices to rest.

Ms. De Lama said that “While predictions that the vaccination programme will curb the disease and underpin output growth in the year ahead meant that business confidence remained positive, growing uncertainty over the near-term outlook due to a rise in COVID-19 cases dragged sentiment to a seven-month low,”.