India’s manufacturing sector output slipped to a seven-month low of 51.2 in September, as order flow turned sluggish amid a “difficult economic climate”, according to a Nikkei survey released on Thursday.
The Nikkei India Manufacturing PMI -- a composite monthly indicator of manufacturing performance -- stood at 51.2 in September, down from 52.3 in August.
A figure above 50 represents expansion while one below that level means contraction.
“Despite having been supported by sustained increases in new work, growth of Indian manufacturing production in September was weighed down by a difficult economic climate,” Pollyanna De Lima, Economist at Markit and author of the report, said.
Nonetheless, the region’s growth prospects for the July-September quarter are encouraging. According to PMI data, the manufacturing sector looks set to provide a stronger contribution to GDP than it did in the April-June quarter, Lima added.
According to the survey, PMI was weighed down by slower increases in new orders and output as growth of new work moderated to the weakest since June, reflecting challenging economic conditions.
Sluggish rise in new business inflows and a cautious approach to costs reportedly led Indian manufacturers to shed jobs in September.
“Slower increases in new business inflows have hindered firms’ ability to recruit. The sector’s labour market was squeezed in September as companies attempted to minimize operating costs,” Lima said.
On prices front, the report said that input costs eased for the second consecutive month and Indian manufacturers passed lower input costs on to clients.
“Goods producers benefited from a downswing in commodity prices. Input costs decreased for the second month running in September, a situation not seen since the financial crisis.
“This provided firms with more room for price negotiation and selling prices were lowered on an average, improving manufacturers’ competitiveness,” Lima added.
Meanwhile, Reserve Bank Governor Raghuram Rajan, on Tuesday, effected a more-than-expected interest rate cut of half a per cent to boost the economy.
Moreover, the RBI has also lowered its economic growth forecast for the current fiscal to 7.4% from its previous projection of 7.6%.
The April-June quarter GDP slipped to 7% from 7.5% in the preceding quarter.