Rediff.com« Back to articlePrint this article

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
Children sit on a horse cart while coming back from school near New Delhi.

India's manufacturing activity has been showing clear signs of a slowdown in growth as it bears the brunt of monetary tightening, which may have repercussions for industrial and overall economic growth as well.

Manufacturing growth fell to the lowest in two and a half years in September, almost close to contraction in output, according to the widely tracked HSBC Purchasing Managers' Index.

Click NEXT to read further. . .

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
A man counts notes.

Economists believe there might be a pause in monetary tightening sooner than later, though the central bank may go for one more policy rate hike.

PMI for manufacturing was down to 50.4 points in September, the weakest since March 2009.
It stood at 52.6 points in August.

A number above 50 indicates expansion in manufacturing output, while any reading below it denotes contraction.

According to financial information firm Markit Economics, which compiles PMI, the rate of new order growth indicating future output fell for the sixth successive month.

The output growth slowed the fastest in the survey's history.

Click NEXT to read further. . .

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
Farmers carry bundles of straw in Agartala.

"While the persistent inflationary pressures support the RBI's tightening bias, the slowdown in manufacturing growth suggests the end to the tightening cycle is at least in sight now," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

The Reserve Bank of India has already raised policy rates 12 times since March 2010, but has failed to bring down inflation, which stood at 9.78 per cent in August.

There could be at least one more rate hike of 25 basis points this year, Markit Economics said.

The PMI data came close on the heels of eight core industries growing at the slowest pace in 11 months at 3.5 per cent in August 2011, down more than half of their highest growth in a year at 7.8 per cent in July. 

Click NEXT to read further. . .

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
Pranab Mukherjee.

Already, industrial growth had plummeted to a 21-month low of 3.3 per cent in July and that too when the core sector performed well.

"In the month gone by, the slowdown in growth momentum has not only gained traction but has become more diversified.

Clearly, the slowdown in the interest rate-sensitive sectors continues, as evident from the tepid pace of expansion in core industries and PMI manufacturing plummeting to a two-and-a-half-year low," Yes Bank chief economist Shubhada Rao said.

She said the RBI may have been done with rate hikes.

The dwindling growth in manufacturing required the government to take an early call on the national manufacturing policy, analysts said.

Click NEXT to read further. . .

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
A wroker arranges earthen lamps in Kolkata.

The policy has been referred to a group of ministers headed by agriculture minister Sharad Pawar, after inter-ministerial differences led to its deferment by the cabinet last month.

Prime Minister's Economic Advisory Council chairman C Rangarajan had estimated the economy to grow 7.9 per cent in the second quarter.

If that happens, the economy will grow sub-eight per cent for the third quarter in a row. It grew 7.7 per cent in the first quarter of this fiscal and 7.8 per cent in the fourth quarter of last fiscal.

Click NEXT to read further. . .

Manufacturing growth lowest in 30 months

Last updated on: October 4, 2011 14:42 IST
Reserve Bank of India logo.

Meanwhile, Fitch Ratings has scaled down India's GDP growth projection to 7.5 per cent this fiscal from 7.7 per cent estimated earlier because of deteriorating global growth prospects.

Markit Economics also said new export orders contracted for the third month in a row.

"The declining new export orders suggested the domestic demand provided principal support to overall new business growth," the financial information firm said.

Source: source image