After a weak core sector data, widely tracked purchasing managers’ index (PMI) gave some relief on the manufacturing side.
The manufacturing sector activities improved in July as new work orders and output strengthened from the previous month, leading to increase in employment at the fastest pace in five months, according to PMI survey.
PMI rose to 52.5 in July from 52.1 in June as companies scaled up production in response to a quicker upturn in factory orders. In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.
On the price front, the survey said the overall rate of inflation was at a three-month low and well below its long-run average, which may prompt the RBI’s monetary policy committee (MPC) to go for another rate cut in its meeting next week.
“The relatively negligible increases in input costs and output charges, signalled by the PMI survey in July, suggest that we are likely to see a further reduction in India’s benchmark interest rate as the RBI continues its effort to support economic growth,” said Pollyanna de Lima, principal economist at IHS Markit.
The next MPC meeting will begin on August 5. In the June review meeting, the RBI had cut key lending rates by 0.25 per cent for the third time this year to spur economic growth, which declined to 6.8 per cent for 2018-19, the lowest in the Modi government’s first tenure.
An official data released on Wednesday showed that eight-industry core sector output was almost flat in June. Core sector industries grew by 0.1 per cent in the month, down at a 50-month low. However, PMI gave some sort of relief on the manufacturing front.
“Following a slowdown in growth in the opening quarter of the 2019-20 fiscal year, some momentum was regained in July. Measures for factory orders, production and employment improved in the latest month, although rates of expansion remained below trend,” said Lima.
According to the survey, the main factor boosting production was a sustained rise in new work inflows.
“Survey participants linked the uptick in growth to a pick-up in demand, mostly stemming from successful marketing efforts, competitive pricing and favourable public policies,” Lima added.
Lima further noted that the domestic market provided the main impetus to sales growth, while external sales rose moderately since April 2018, as factories took a hit from subdued global trade flows.