Outages, limited workforce bruise manufacturing PMI

A day after government data showed India’s economic growth fell to 6.5 per cent in 2011-12, the widely-tracked HSBC purchasing managers’ index (PMI) today showed power cuts and insufficient staff hampered manufacturers from raising production to keep pace with demand in May.

However, India’s PMI was only a tad lower at 54.8 points in May, compared with 54.9 points in April. Any score above 50 signifies growth. PMI takes into account production, demand, business conditions, etc. in its survey. Compared to the beginning of this calendar year, PMI for manufacturing came down drastically from 57.5 points in January. It fell in February to 56.6 points, then to 54.7 points in March, before rising slightly in April.

 

As demand outpaced supply, both input and output prices rose, prompting HSBC Chief Economist for India Leif Eskesen to caution the Reserve Bank of India (RBI) against any monetary easing. RBI is slated to come up with its monetary review next month.

Inflation was still high by historical standards and capacity remained tight with backlogs of work rising and supplier delivery times lengthening. In light of these numbers, RBI did not have a strong case for further rate cuts, which if implemented could add to lingering inflation risks, said Eskesen.

Eskesen’s views are in sharp contrast with India Inc’s demand for monetary easing to rev up economic growth, which fell to a nine-year low in 2011-12.

The survey, based on the responses of around 500 private sector companies, revealed that new order growth led firms to expand production in May.

“That said, respondents continued to suggest that power cuts had hampered operations, preventing a faster rise in output,” said financial information firm Markit Economics which compiles the survey. Power shortages, as well as insufficient employee numbers, led to a marked accumulation of backlogs of work, it added.

Reflecting this, manufacturers increased employment levels in May, although the rate of job creation remained modest, responses to the survey revealed.

As has been the case in each month since April 2009, firms raised their input buying in May. Respondents indicated the latest increase was reflective of higher new orders and rising production requirements.

Increased input buying and power cuts affected negatively on the performance of suppliers, although the lengthening of delivery times was only fractional.

Indian manufacturers passed on higher input costs to their clients in May, Markit Economics said.

Output prices rose for the thirty-third month in a row, and at one of the fastest rates in the history of the series.