Yet Another Low: India Sees Worst Manufacturing PMI In 4.5 Years
With GDP growth falling to 4.4%, surely one could not expect anything but a slump in the manufacturing sector 
data. As per the HSBC Manufacturing PMI numbers, India’s manufacturing sector was at its lowest point in the last four and half years in August 2013. At 48.5, the number indicates a contraction in the manufacturing segment, which is also in line with the IIP data.
The report has said that the demand environment is subdued owing to the weak economic condition in the country. New orders placed with Indian manufacturers have declined sharply, and the rate of contraction has increased. Manufacturers’ output has also declined due to the poor demand scenario. The order books have decreased sharply.
New business orders from abroad have also fallen. Competitive pressures have increased and the demand from key export clients was weaker.
Indian manufacturers have reduced their production volumes at the fastest clip in 4.5 years. The output has fallen, with the intermediate goods companies reporting a sharper decline. Stocks of finished goods have also decreased for the first time since March 2013. All these clearly point at a deterioration in the manufacturing sector.
With the lower number of new orders, input buying has declined by a good chunk. HSBC has said that “The latest contraction in purchasing activity was broad-based, with all three monitored sub-sectors registering lower buying activity”.
Indian manufacturers have continued adding new jobs, albeit at a slower pace. Vendor performance has deteriorated in August, with longer delivery time, shortages of raw material and rupee depreciation. Vendors are reluctant to deliver materials due to the depreciation of the rupee against the dollar. The fall in the rupee has led to a rise in input prices, and hence the rate of cost inflation has remained strong. Firms have raised the product prices in a bid to protect their margins.
Overall, the manufacturing sector seems to have lost its sheen at the moment. The IIP numbers due this month would again be poor.
Commenting on India’s Manufacturing PMI data for August, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, "Manufacturing activity contracted in August for the first time since March 2009. This was led by a decline in new orders, especially export orders. Together with a draw-down in finished goods inventories, this led to a drop in output. Encouragingly, input and output price inflation slowed despite the weakening of the currency, which likely reflect the softening demand conditions and, therefore, declining pricing power. Notwithstanding the weak growth backdrop, the RBI will likely keep its liquidity tightening measures in place for a while still to help contain the depreciation of the currency. Combined with the heightened macroeconomic uncertainty, this will continue to weigh on growth in coming months.”