India's manufacturing sector activity contracted for the second consecutive month in September as both output and new orders witnessed a decline, an HSBC survey said on Tuesday.
The overall rate of contraction was, however, marginal and eased since August, when it had slipped sub 50.0 reading (below which it indicates contraction) for the first time since March 2009.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) for the manufacturing industry stood at 49.6 in September, higher from 48.5 in August, but remained below the crucial 50 mark (below which it indicates contraction) for the second consecutive month.
"Manufacturing activity continued to shrink in September, albeit at a slower pace. Order flows remained weak, especially export orders, and employment fell," HSBC Chief Economist for India and ASEAN Leif Eskesen said.
Faced with fewer projects, companies reduced their workforce numbers for the first time since February 2012. "Reflective of a further reduction in new order levels, Indian manufacturers cut their staffing levels in September," HSBC said adding that "the latest fall ended a period of job creation that had lasted for one and-a-half years".
Although new orders fell at a slower and marginal pace, the contraction of export business was very significant. According to HSBC, a depreciation of the rupee versus the US dollar had resulted in higher prices paid for inputs and limited firms' ability to price "competitively".
The findings of the survey comes at a time when the country is battling slower growth rate, wider current account deficit and a battered currency. According to official data, high imports of gold and oil pushed Current Account Deficit (CAD) to 4.9 per cent of GDP at $21.8 billion in the April-June quarter of the current fiscal.
"Despite the weak growth readings, the build-up in underlying inflation pressures suggests that the RBI has to keep its inflation guards up," Eskesen said.
The Reserve Bank of India, in its September 20 policy review, had unexpectedly raised the policy rate by 0.25 per cent as it kept its focus on controlling inflation. Driven by costlier food items, wholesale price inflation rose to a six-month high of 6.1 per cent in August.
