Manufacturing PMI falls to 7-month low in March as Covid cases rise

Employment declined in March, says report as central bank's committee meets for monetary policy.

Growth in manufacturing slowed to the lowest rate in seven months, as increasing Covid-19 cases hit demand, said IHS Markit’s purchasing managers' index (PMI) on Monday.

PMI fell from 57.5 in February to a seven-month low of 55.4 in March. In PMI lexicon, a reading above 50 means growth and the one below 50 shows contraction. The data came on a day the Reserve Bank of India's monetary policy committee sits for deciding the policy rate. The decision will be made on Wednesday.

"Survey participants indicated that demand growth was constrained by the escalation of the COVID-19 pandemic, while the rise in input buying was curtailed by an intensification of cost pressures," said Pollyanna De Lima, economics associate director at IHS Markit.

The weak March PMI data corroborates what the core sector showed for the month of February. Core sector output contracted 4.6 per cent in the month, dragged down in fall in production in each of eight industries.

Employment declined in March, taking the current sequence of job shedding to a year, according to PMI’s report based on a survey of 400 manufacturers. The rate of contraction was modest, but the quickest since September 2020. Panelists indicated that the fall stemmed from Covid-19 restrictions related to workforces. Despite the reduction in payroll numbers, outstanding business rose only marginally.

Lima said with Covid-19 restrictions expanded and lockdown measures re-introduced in many states, Indian manufacturers look set to experience a challenging month in April.

Predictions that the vaccination programme will curb the disease and underpin output growth in the year ahead ensured that business confidence remained positive, but growing uncertainty over the near-term outlook due to a rise in Covid-19 cases dragged sentiment to a seven-month low, Lima said.

Business confidence waned in March. While some firms foresee output growth in the coming 12 months, the vast majority predicted no change from present levels. Where optimism was signaled, this was commonly pinned on hopes that Covid-19 controls would ease.

Average cost burdens continued to increase sharply in March. The rate of inflation was the second-strongest in just under three years, weaker only than February's. Panelists reported higher chemical, metal, plastic, rubber and textile prices.

Some firms lifted their selling prices in attempts to protect margins given ongoing increases in input costs. However, others refrained from doing so due to competitive pressures and sales boosting initiatives. The overall rate of output inflation was moderate, the slowest in three months and below its long-run average.