India’s manufacturing activity portends low growth in March: SBI Research

The yearly State Bank of India (SBI) composite index, an indicator for tracking India's manufacturing activity for March 2016 has declined below 50 and is at 49.5 (low decline), compared with last month index of 51.3 (moderate growth). However, it has registered a month-on-month surge to 54.5 in March 2016, from 49.1 in February 2016. The SBI report noted that the manufacturing activity in the country does not augur well for the economic growth in March and bank credit to domestic export sector has suffered due to fall in external demand.

Though the index 'portends' low growth, the good news is that credit off-take has increased to 11.5 percent as on March 4 compared with last year's growth of 9.8 percent on March 6, 2015. However, refinancing constitutes much of the credit growth; hence it would be difficult to say whether credit growth has picked up materially or in a sustained manner. The report further stated that the bank credit to domestic export sector has suffered due to fall in external demand as is visible in major export sectors like textile, gems and jewellery and this in turn has led to contraction in demand of credit. Furthermore, instances of dumping have made revival of certain sectors difficult, depressing the demand of credit.

According to the report, the incremental lending has been mostly to the personal loan segment, especially housing, and also Mudra. The overall credit-deposit ratio is at 77.1 as on 4 March 2016 from 76.4% a year ago and 76.6% in 20 March 2015.

As per the SBI’s composite index, a value of less than 42 means large decline while a value of 42 to 46 means moderate decline, 46 to 50 (low decline), 50 to 52 (low growth), 52 to 55 (moderate growth) and above 55 (high growth. The SBI Composite Index mirrors the credit demand in the country, and other data sets available in public domain.