Tue, Jan 03, 2017 - Page 10 News List

India manufacturing to shrink: gauge

Bloomberg

A private gauge indicates that India’s manufacturing sector will shrink for the first time in a year as Indian Prime Minister Narendra Modi’s unprecedented clampdown on cash hurts demand.

The Nikkei India Manufacturing Purchasing Managers’ Index was at 49.6 last month, a report showed yesterday, the lowest since December 2015. A number below 50 indicates a contraction.

“Shortages of money in the economy steered output and new orders in the wrong direction, thereby interrupting a continuous sequence of growth that had been seen throughout 2016,” economist Pollyanna De Lima wrote in a report. “Cash flow issues among firms also led to reductions in purchasing activity and employment.”

A continued slowdown would strip India of its position as one of the world’s fastest-growing big economies and risk a political backlash against Modi. Purchasing managers’ index data is due from India’s key services sector tomorrow before focus shifts to the government’s first official growth estimate for the year through March.

New work and production fell slightly. Payrolls decreased marginally; the vast majority of panelists signaled unchanged workforces.

Input cost inflation accelerated and “January data will be key in showing whether the sector will see a quick rebound,” De Lima wrote.

Other recent data also mirror the stress. Motorcycle maker Bajaj Auto Ltd’s total sales slipped 22 percent last month, the steepest fall in at least 21 months. Motorcycle sales — a key indicator of rural demand — declined 18 percent.

India’s biggest automaker by volume, Maruti Suzuki Ltd, reported a 4.4 percent drop in domestic sales last month, the first decline in six months, while overall sales fell 1 percent from a year earlier.

India’s economy would grow 6.9 percent in the year through March, according to the median estimate in a Bloomberg survey published late last month.

That is slower than the 7.3 percent predicted by a survey in November last year.

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