India's manufacturing sector contracts in June; first time in 11 months: Survey

India’s manufacturing sector activities contracted for the first time in 11 months in June as rise in coronavirus cases and strict containment measures adversely impacted demand as well as resulted in job losses, a monthly survey said on Thursday.

The seasonally-adjusted IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) declined to 48.1 in June from 50.8 in May.

The index fell below the critical 50.0 mark for the first time since July 2020. In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.

The latest reading highlighted renewed contractions in factory orders, production, exports, and quantities of purchases. Moreover, with business optimism fading over the month, job shedding continued, the survey said.

Impact of Covid-19

Covid-19 restrictions also curtailed international demand for Indian goods and new export orders decreased for the first time in ten months.

“The intensification of the Covid-19 crisis in India had a detrimental impact on the manufacturing economy. Growth of new orders, production, exports, and input purchasing was interrupted in June as containment measures aimed at bringing the pandemic under control restrained demand,” Pollyanna De Lima, Economics Associate Director at IHS Markit, said.

Lima, however, noted that in all cases, rates of contraction were softer than during the first lockdown.

Business confidence was dampened in June by uncertainty over when the pandemic can be brought under control. Companies were at their least optimistic for almost a year. “As a result of subdued optimism, jobs were shed again in June,” Lima said.

On the price front, input costs increased further in June, with firms reporting higher prices for chemicals, electronic components, energy, metals, and plastics.

Additional cost burdens were again transferred on to clients, with goods producers hiking their fees for the tenth straight month, the survey said.

“Out of the three broad areas of the manufacturing sector monitored by the survey, capital goods was the worst affected area in June. The output here declined at a steep rate due to a sharp fall in sales.

“The sector also saw the fastest contraction in buying levels and was the only to post job shedding,” Lima said.