Snapping 25 month sequence of growth, manufacturing activity in India has contracted in the month of December as Chennai floods triggered significant decline in output and new orders, adding pressure on the Central Bank in order to ease policy. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI), slipped to 49.1 in December from November's 50.3. The PMI has slipped below the crucial level of 50.0 for the first time since October 2013. A figure above 50 represents expansion while a reading below this level means contraction.
According to the survey, December's persistent rainfall in Chennai impacted heavily on the sector, with fall in new work leading the companies to scale back output at the sharpest pace since February 2009. Severe rainfall and flooding caused widespread destruction in late November and early December, limited the output to its lowest since the global financial crisis. On the price front, inflation rates of both input costs and output charges were at seven month highs.
In the month of December, Consumer goods bucked the sub-sector trend and was the only category to see improving business conditions as production and new orders rose. However, incoming new work and output fell in both the intermediate and investment goods market groups.
Talking about Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at Markit has said “India’s manufacturing sector took a turn for the worse at the year end, with already-gloomy internal demand further hampered by floods in the South of the country.” The Nikkei India Manufacturing PMI is based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 300 industrial companies.