Factory output slips in May; sector heading towards stagnation

India's manufacturing sector activity witnessed a significant loss of growth momentum in May due to the intensification of the COVID-19 crisis and its detrimental impact on demand, a monthly survey said on Tuesday.

The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers' Index (PMI), fell to 50.8 in May, down from 55.5 in April, as companies observed the slowest rises in new work and output in ten months amid intensification of the COVID-19 crisis.

In PMI parlance, a print above 50 means expansion while a score below 50 denotes contraction.

"The Indian manufacturing sector is showing increasing signs of strain as the COVID-19 crisis intensifies.

"Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the slowest rates of increase in ten months.

"In fact, all indices were down from April," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Lima, however, noted that the detrimental impacts of the pandemic and associated restrictions seen in the manufacturing sector are considerably less severe than during the first lockdown when unprecedented contractions had been recorded.

"Growth projections were revised lower, as firms became more worried about the escalation of the pandemic and local restrictions.

"The overall degree of optimism towards the year-ahead outlook for output was at a ten-month low, a factor which could hamper business investment and cause further job losses," Lima said.

The growth of the manufacturing sector was curbed by the escalation of the pandemic and difficulties in securing raw materials, the survey said.

Concerns surrounding the pandemic restricted business confidence towards the year-ahead outlook for production, the survey said.

"Amid a lack of new work, goods producers reduced headcounts again, with the rate of job shedding quickening in May," Lima said.

On the marcoeconomic front, India's economy contracted by less-than-expected 7.3 per cent in the fiscal year ended March 2021 after growth rate picked up in the fourth quarter, just before the world's worst outbreak of coronavirus infections hit the country.

The next bi-monthly monetary policy review of the Reserve Bank of India (RBI) is scheduled to be announced on June 4.

Experts believe, with the economic outlook remaining uncertain in light of the continuing pandemic, the monetary policy stance of RBI is likely to remain accommodative.

Photograph: Amit Dave/Reuters