Factory slump deepens in May, job cut gathers pace: PMI data

India’s manufacturing activity contracted in May due to weak demand and logistic challenges, said the monthly IHS Markit India Manufacturing Purchasing Managers’s Index (PMI) survey on Monday. The fall was slightly slower than April's historic contraction. 

Manufacturing PMI stood at just 30.8 in May, marginally up from April's 27.4. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction. "The latest reading pointed to another substantial decline in the health of the Indian manufacturing sector, albeit one that was slightly softer than recorded in April," said Markit Economics.

A nationwide lockdown in April, coupled with a crash in export orders, had led to conditions across sectors falling by the biggest margin ever and new businesses collapsing at a record pace. In May, jobs were hit the most. Jobs were again cut and at a quicker pacer than April's 15-year high, the survey said.

PMI had already been on a downward curve even before the Covid-19 pandemic hit. After hitting an eight-month high of 55.3 in January, output had fallen to 51.8 in March. “The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis, with demand remaining subdued while the longevity of the pandemic remains uncertain," said Elliot Kerr, economist at IHS Markit.

Despite industrial activity partially resuming after April 20, manufacturing activity could not kick in fully. New orders fell for the second-month running. Also, dearth of labour and raw material remained widespread, while supply chains could not be established, said industry bodies. As a result, firms continued to cut back production midway through the second quarter, the survey said.

Weak demand from international markets added to the deteriorating sales trend, with new business from abroad plunging further in May. Anecdotal evidence suggested that global measures to stem the spread of COVID-19 continued to stifle exports. In April, the rate of contraction in exports had risen sharply and outbound sales had dropped at the quickest pace in over 15 years.

Economists hope April and May will be the harshest months of FY21. “Most industry was closed in April and the effect lingered on till May, Difficult to say it at this point but chance of growth looks slim in the short term given the challenges,” said Devendra Pant, chief economist, India Ratings and Research.

Experts predict overall industrial production for April—data for which will be released later—will show a major fall of 75-80 per cent. According to data from the Index of Industrial Production, a collapse in manufacturing sector had led to industrial output falling by 16.7 per cent in March, when lockdown had been in force for just five days.

The PMI survey however showed that manufacturers remained optimistic towards the one-year business outlook in May.