Manufacturing activity grows at a slower clip in July; weakest in last eight months

With clear signs that weak global economic conditions were dragging down export orders, manufacturing activity grew at a slower clip in July on the back of power outages and a moderation in new order inflows, which continued to rise but at the weakest rate since last November as new export orders fell for the first time since October 2011. Dollar appreciation could be mentioned as a driver behind falling export business. But the impact of unusual severe blackouts of the last two days of July, which hit grids in a dozen northern states, home to around 670 million people, was not included in the survey.

According to the HSBC purchasing managers’ index (PMI), a headline index designed to measure the overall health of the manufacturing sector, expanded at the slowest pace in the past eight months to 52.9 in July, 2012 as against 55.0 in the previous month of 2012. However, a figure above 50 signals increase in production while, a number below 50 indicates contraction.

Underscoring the global effect of the current downturn caused by the euro zone's 2-1/2 year old sovereign debt crisis, the new export orders sub-index fell to 49.7 from 52.3 in June, its first sub-50 reading in nine months. Further, manufacturing firms in India signaled rising charges during July. Although the output price inflation persisted in the sector for 35 successive months, but the rate of increase during July slowed from the reading in the previous month. Meanwhile, quantity of purchases in the Indian manufacturing sector increased moderately, with the pace of increase being the slowest since September 2011.

Since, manufacturing accounts for around 15 percent of India's gross domestic product, so a slowdown would not augur well for Asia's third-largest economy, already struggling with its weakest growth in almost a decade. Further, reasoning deficient monsoon, deceleration of industrial growth, RBI, in its first quarter monetary policy review 2012-13, revised downward the GDP forecast for the current financial year to 6.5 per cent from 7.3 per cent.