Mfg engines cool, casting doubts over growth track

The pace of business activity in India's manufacturing sector is slowing, dimming hopes for those rooting for a sharp rebound in gross domestic product (GDP) growth.

- Harsha Jethmalani

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell to a 12-month low of 56.4 in December, slightly below November's 56.5. Sure, a reading above 50 indicates expansion, but it offers little comfort this time. The latest reading also marks the second consecutive monthly drop, with the final December PMI also falling short of the flash estimate of 57.4, further tempering initial optimism. Increased competition and cost pressures emerged as the villains, leading to a weaker-than-expected improvement in operating conditions for manufacturers. Overall expenses climbed as costs of container, material and labour increased.

In response to these rising costs evidence and to protect margins, manufacturers raised selling prices in December. According to the PMI survey, selling prices increased at a pace that outstripped cost burdens and was significantly higher than the near 20-year series average..

"Anecdotal showed that demand resilience supported pricing power," the PMI report noted. But this demand resilience will be put to test sooner than later as downside risks linger with muted urban consumption being a sticky issue.