In a clear indication that the introduction of the goods and services tax (GST) weighed heavily on the manufacturing sector, the manufacturing production in India contracted for the first time this year in the month of July since the downturn recorded in December last year post demonetization. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI)-a composite single-figure indicator of manufacturing performance- fell to 47.9 in July from June's 50.9. A below 50 figure reported for the month was at its lowest mark since February 2009, highlighting the first deterioration in business conditions in 2017 so far.
As per survey, along with sluggish manufacturing activity, the contractions were also reported in demand, employment and purchasing activity. The report further noted that the intermediate goods producers got affected the worst, while new export orders continued to rise in July. Besides, it said that lower sales triggered an overall accumulation in stocks of finished goods.
On the inflation front, the survey said that higher tax rates sparked greater cost burdens in July. However, the pace at which input costs rose was moderate and much weaker than its long-run average. It also mentioned that some companies lowered their selling prices in order to win new business amid competitive environment. Further, the 12-month outlook for output remained positive in July, with companies expecting more clarity regarding the GST to support growth.