Although economic growth in the Indian manufacturing industry was sustained in August, most survey indicators fell since July to signal a widespread loss of momentum. With sales expanding at the slowest rate in 15-months, production growth and job creation were tamed, while factories lowered input buying for the first time since May 2018. One survey indicator that moved up was the measure of input costs.
Inflation accelerated to a nine-month high, though remained moderate and below its long-run average. The only other upward movement was seen for business confidence, which strengthened to a 16-month high.
At 51.4 in August, the seasonally adjusted IHS Markit India Manufacturing PMI signalled a further improvement in the health of the sector. However, the headline figure was down from 52.5 in July to its lowest mark since May 2018, and below its long-run average of 53.9. New business continued to flow in, but August saw the rate of expansion eased to a 15-month low.
Firms that noted sales growth commented on successful marketing and the receipt of orders in bulk. Anecdotal evidence indicated that competitive pressures and challenging market conditions restricted the upturn. New orders from overseas also increased at a slower rate in August, with growth the weakest seen since April 2018.
Subdued sales to domestic and international clients, in turn, curbed output growth, which softened to the weakest in a year. Some survey members also reported cash flow problems and a lack of available finance. Despite remaining in expansion, employment rose only marginally, and to a lesser extent than in July. Some panellists indicated that weak sales prevented them from replacing retirees and voluntary leavers.
Commenting on the latest survey results, Pollyanna de Lima, Principal Economist at IHS Markit said, "August saw an undesirable combination of slowing economic growth and greater cost inflationary pressures in the Indian manufacturing industry. Most PMI indices moved lower, including key health-check measures for new orders, output and employment. In the former two cases, rates of expansion were particularly weak when we look at the survey history. Another worrying sign was the first drop in input buying for 15 months, which reflected a mixture of intentional reductions in stocks and shortages of available finance. Until manufacturers are willing to loosen the purse strings, it's difficult to foresee a meaningful rebound in production growth on the horizon. Another factor restricting quantities of purchases was a pick-up in the rate of increase in input prices. While not alarming, the acceleration in cost inflation may restrict central bank stimulus to the economy in the near-term."