India’s Manufacturing Activity Falls in October

The implementation of GST has had an adverse effect on businesses so far, according to reports.

A worker manufactures a lock at a workshop in Aligarh, Uttar Pradesh, India. 

(Photo Courtesy: Udit Kulshrestha/Bloomberg)

India’s manufacturing activity slowed down, last month, as flow of new orders ‘stagnated’ due to the Goods and Services Tax-related disruptions.

The Nikkei India Manufacturing Purchasing Managers’ Index stood at 50.3 compared to 51.2, according to a release. A reading below 50 indicates contraction and a number above it signals expansion.

Output rose only fractionally during October while new orders remained unchanged. Muted demand even led to a decrease in purchasing activity and pre-production inventories, the Markit report said. Business confidence stood at its weakest level since February.

Inflows of new orders stagnated as the negative effects arising from the implementation of GST continued to dampen demand levels. Furthermore, overseas demand for Indian goods dipped to the greatest extent since September 2013.

Aashna Dodhia, Economist, IHS Markit 

The implementation of GST from 1 July has had an adverse effect on businesses so far, according to management commentary and brokerage reports. With the onset of the second quarter earnings season, a number of fast moving consumer goods companies and carmakers have cited a weak quarter to the new sales tax regime.

The 50.3 number is still marginally higher than the July to September quarter average of 50.1, suggesting that manufacturing activity is improving in the October to December.

Input prices rose at the fastest rate since May, possibly due to higher commodity prices, according to research firm Nomura. The firms had passed on this cost increase to their customers in a bid to protect their profit margins.

The research report said:

With our heat-map of high-frequency data suggesting that consumption and transportation services have improved, we continue to expect GDP growth to recover to 6.7 percent in the second half of 2017, up from 5.9 percent in the first half, as the effects from temporary disruptions should gradually fade.

Meanwhile, employment rose for the third straight month in October. Firms increased the number of people on their payroll at a similar pace to that in September when new employment reached a 59-month high.

(This article was originally published in BloomberQuint.)

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