India's mfg sector activity inches up in Nov; firms brace for challenging times ahead

The country's manufacturing sector activity saw a marginal rise in November as growth rates for new orders as well as production were modest amid competitive pressures and unstable market conditions, a monthly survey said on Monday. Subdued sales amid challenging economic scenario prevented hiring in November, with payroll numbers declining for the first time in 20 months, the survey said.

Some firms were able to secure new work amid successful marketing and strengthening demand, but others struggled in the face of competitive conditions, amid challenging economic scenario and troubles in the automotive sector. The IHS Markit India Manufacturing PMI rose to 51.2 in November from 50.6 in October, when it had fallen to a two-year low, indicating only a slight improvement in the health of the sector.

According to the survey, growth was supported by the launch of new products and better demand, though restrained by competitive pressures and unstable market conditions. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

"After pulling back noticeably in October, manufacturing sector growth displayed a welcoming acceleration in November. Still, rates of expansion in factory orders, production and exports remained far away from those recorded at the start of 2019, with subdued underlying demand largely blamed for this," said Pollyanna de Lima, Principal Economist at IHS Markit. The survey further noted that growth rates for new orders and production were "modest" and employment falls for first time since March 2018.

A number of companies indicated that workloads had been managed by existing staff, while others cited the non-replacement of retirees and non-renewal of temporary contracts. "Some level of uncertainty regarding the economy was evident by a subdued degree of business optimism. Also, companies shed jobs for the first time in over a year-and a-half and there was another round of reduction in input buying," Lima said.

Business sentiment strengthened in November. However, the Future Output Index was well below its average, as a number of firms were concerned about the state of the economy, the survey noted. "Some level of uncertainty regarding the economy was evident by a subdued degree of business optimism. Also, companies shed jobs for the first time in over a year-and a-half and there was another round of reduction in input buying. The weakness of these forward-looking indicators suggests that firms are bracing themselves for challenging times ahead," Lima said.

On the inflation front, there were only marginal increases in both input costs and output charges in November. "PMI data continued to show a lack of inflationary pressures in the sector which, combined with slow economic growth, suggests that the RBI will likely extend its accommodative policy stance and further reduce the benchmark interest rate during December," Lima said.

The Reserve Bank may cut interest rates for the sixth straight time on December 5 to support growth that has continued to slip to more than six-year low on slump in manufacturing, bankers and experts said. The RBI has cut interest rates on every single occasion the monetary policy committee (MPC) has met since Shaktikanta Das took over as the Governor in last December.

In five reductions so far in 2019, interest rates have been lowered by a total of 135 basis points over concerns that growth momentum is slowing down and also to try to boost liquidity in the financial system. GDP growth slowed sharply to a pace of 4.5 per cent in the July-September, hit by a slump in manufacturing output. The pace of GDP growth has moderated from the 5 per cent rate in April-June and 7 per cent in July-September quarter of 2018.

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