Factory output slows in June as new orders rise at a weaker rate

Indian factory output moved rather slowly as output and new orders rose at a weaker pace. Purchasing Managers Index (PMI) fell to April level of 51.3 in June, from 52.6 in May.  

Nikkei manufacturing PMI, previously known as HSBC manufacturing PMI compiled monthly, measures economic health of a sector based on surveys of private sector companies. A reading of above 50 on the index denotes expansion. The manufacturing output in the country expanded for the 20th successive month.

While growth was recorded across all three categories, capital good firms registered the strongest rise. 

“Following the pick-up in growth rates for output and new orders seen in May, June PMI data pointed to a slowdown in India’s economic upturn.

New business expanded at a noticeably weaker pace, in part reflecting a loss of momentum in export business. Moreover, manufacturers remained cautious and employment numbers were unchanged once again,” said Pollyanna De Lima, economist at Markit.

The report by Nikkei also highlighted the status quo on the employment front, since last year. Both input costs and output charges rose at rates below their respective long-run averages, the report stated. 

Though the economy has fared better on the manufacturing front, the real worry for the government lies in its handling of agricultural sector which has seen muted growth since the last year. The below-normal monsoon are expected to further slow down rate of expansion in rural economy. A recent report by Moody's highlighted that India's weakened rural economy will remain subdued through the fiscal year ending March 31, 2016 (FY16), particularly if the risk of below-average monsoon rainfall materialises while also highlighting that the soft rural demand may prove credit negative for issuers.

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