Factory output slows in April on weakening demand

Indian factory output slowed in April as new orders increased at a weaker pace. Purchasing Managers Index (PMI) fell to 51.3 in April, from 52.1 last month, as companies reduced staffing levels and raised output to a lesser degree.  

PMI, compiled monthly by global bank HSBC, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion. Although activity slumped, it stayed above the 50 mark for eighteenth successive month. 

While growth was recorded across all three categories, capital good firms registered the strongest growth while consumer goods grew at a slower pace. New export orders increased indicating a stronger demand from external markets, but the activity was pulled down by softening domestic demand and competitive pressures. 

Relaying optimism in the growth prospects of Indian economy, Pollyanna De Lima, economist at Markit, said, "Despite recording softer rates of expansion, the Indian manufacturing sector held its ground in April, benefiting from ongoing improvements in operating conditions."

"Even with the slower pace of expansion, the goods-producing sector is on course to provide a boost to the overall economy in the upcoming quarter," she added.

While industrial growth picked up in February reaching a nine-month high, growth is yet to find as core industries, which supply crucial inputs to other sectors, remain to be on the downside.  The index of eight core industries for March slipped into negative territory for the first time in 18 months. The cumulative growth during fiscal year ended March 31 declined for second consecutive year to 3.5 per cent compared with 4.2 per cent in the previous fiscal. 

The report highlighted the lack of growth on the employment front. Even though there are signs of growth in factory activity, job creation has lagged. The index measuring employment has shown little change to staff numbers since the beginning of 2014 the report mentioned.

The slow pick up in manufacturing coupled with subdued inflation shall provide impetus for RBI to cut rates for one more time this year. India is expecting  growth in manufacturing to jump start  the Indian economy as it aims to expand faster than its developing counterparts. 

Factory output in the Chinese economy showed biggest drop in factory activity in a year. India, which revised its GDP calculations, is set to overtake China as the fastest growing economy.

(Edited by Joby Puthuparampil Johnson)

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