India's Manufacturing Sector Contracts For The First Time In 11 Months: Survey

Rising coronavirus cases and strict lockdown measures led to the contraction of India's manufacturing sector for the first time in 11 months in June, a monthly survey said on Thursday, July 1. The containment measures and restrictions imposed in the backdrop of the second wave of coronavirus adversely impacted demand and resulted in job losses.

According to the latest IHS Markit India Manufacturing Purchasing Managers' Index (PMI), a gauge of activity, the manufacturing PMI decreased from 50.8 in May to 48.1 in June. The 50.0 mark is critical because a score above 50 means expansion and a score below 50 indicates a contraction. According to the survey released on July 1, the index fell below the critical mark for the first time since July 2020.

Insufficient Domestic Demand Is The Leading Cause

The latest survey highlighted renewed contractions in factory orders, exports production, and quantities of purchases, according to India Today. The sector's poor performance has been attributed to poor domestic demand conditions in the months before May. According to the IHS Markit, the slight growth witnessed in May was because of the foreign export orders. But the COVID-19 restrictions also curtailed international demand and new export orders decreased for the first time in 10 months.

However, Pollyanna De Lima, Economics Associate Director at IHS Markit noted that the rates of contractions are not as high as it was during the first lockdown. But the uncertainty over the pandemic led to a dampened business confidence in June, which resulted in job losses in the sector, Lima added.

Rising Input Costs

Input costs rose further in June, with various firms citing higher prices on chemicals, energy, electronic components, metals, and plastics. With the producers of the goods hiking their fees for the 10th month straight, the clients were at the receiving end of the additional cost burdens, as revealed by the survey.

Lima further noted that capital goods were the most affected area in June, out of the three broad areas of the manufacturing sector. A sharp fall in sales caused the output to decline very fast. The manufacturing sector also saw the most rapid contraction in buying levels.

Although the manufacturing sector started on a firmer footing in 2021 than it had finished in 2020, the sector has continued to lose momentum in growth. In the opening quarter of the 2020-21 fiscal year, the PMI averaged just 51.5, which is the lowest three-month figure in the same period one year ago.

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