Manufacturing output shrinks for 1st time in over 2 years

New Delhi : In the first contraction in over two years, manufacturing sector output dipped in December to a 28-month low as new orders fell sharply and production took a big hit from heavy rains in Chennai, putting pressure on RBI to keep rates low.

Painting an even gloomier picture, the monthly PMI (Purchasing Managers’ Index) survey showed that the rate of contraction was sharpest in almost seven years since the global financial crisis.

The Nikkei India Manufacturing PMI, a composite monthly indicator of manufacturing performance, dipped from 50.3 in November to 49.1 in December. This is the lowest level of the index since March 2013.

 The PMI has slipped below the crucial level of 50 for the first time since October 2013. A figure above 50 indicates expansion, while the one below this level means contraction.

December’s incessant rainfall in Chennai impacted heavily the manufacturing sector, with lower orders leading companies to scale back output at the sharpest pace since February 2009.

The survey further noted the decline in manufacturing sector production was largely owing to a contraction in incoming new work for first time since October 2013. On the price front, the survey said inflation rates of both input costs and output charges were at seven month highs.

 “The continued depreciation of the rupee against the US dollar pushed inflation higher, with PMI price indicators pointing to stronger increases in both input prices and output charges,” Pollyanna De Lima, Economist at Markit and author of the report, said. Given a sharp deterioration in manufacturing output in China as well, the experts believe that the global headwinds can make things even worse for the Indian markets, which will add to the pressures on RBI to keep rates low.

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