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India's Manufacturing shrinks most in four years

business Updated: Sep 03, 2013 01:54 IST
HT Correspondent

Here’s more proof about the Indian economy’s shaky health.

India’s manufacturing activity slowed down to its weakest pace in four-and-a-half years in August, confirming fears that it may take longer- than-expected to scale the slowdown hump in Asia’s third-largest economy, as GDP growth crashed to a four-year low of 4.4% in April-June.

The growth of eight infrastructure industries also slowed down to 3.1% in July against 4.5% a year-ago, mainly due to contraction in oil and natural gas production.

Overall Purchasing Managers’ Index (PMI) from HSBC fell to 48.5 in August from 50.1 last month on the back of cooling domestic and export demand.

The HSBC India Manufacturing PMI is based on data compiled from replies to questionnaires sent to purchasing executives in over 500 companies based on industry contribution to India’s GDP.

These provide an indication of what is happening in the private sector economy by tracking variables like output, stock levels and prices across manufacturing, construction, retail, service sectors.

A PMI reading below 50 indicates output contraction.

“Manufacturing activity contracted in August for the first time since March 2009 led by a decline in new orders, especially export orders,” said Leif Eskesen, chief economist for India & ASEAN at HSBC.

The latest set of data are likely to determine the Reserve Bank of India’s next move in its mid-quarter review later this month. “The RBI will likely keep its liquidity tightening measures in place for a while,” said Eskeen.