Manufacturing activity slowed to a four-month low in June due to challenges posed by the implementation of Goods and Services Tax, a challenging economic environment, and water shortages in parts of the country, according to a private sector survey.
Slip from May
The Nikkei India Manufacturing Purchasing Managers’ Index slipped to 50.9 in June from 51.6 in May. A reading above 50 implies an expansion, while one below 50 denotes a contraction.
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“One factor weighing on the PMI reading for June was a softer expansion in new work, the index’s largest sub-component,” the report said. “Growth of total order books eased to a four-month low, with the intermediate goods category the key source of weakness. New orders received by consumer goods firms continued to rise strongly, while capital goods producers recovered from May’s contraction.”
The report noted that output across the manufacturing sector rose for the sixth consecutive month in June, which survey participants linked to ongoing increases in client demand.
“That said, challenging economic conditions, water shortages and the upcoming implementation of the goods & services tax (GST) reportedly hampered growth,” the report added.
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“For the third month in a row, production growth in India eased during June,” Pollyanna De Lima, Economist at HIS Markit and author of the report said.
“In many cases, businesses indicated that growth was held back as a reflection of water scarcity and the impending introduction of the goods & services tax (GST). While the new tax system is anticipated by some firms to generate more business, others expect the GST to have a detrimental impact on their order books. As such, overall optimism slipped to a three-month low.”
GDP growth
Looking ahead, Ms. De Lima predicted that, with the impacts of demonetisation largely over and GST unlikely to substantially derail consumer spending, real GDP growth would hit 7.3% for FY18.