Growth in India's manufacturing sector eased to a
nine-month low in August as export orders fell for a second month,
underscoring the risks to the wider economy from Europe's debt crisis, a
business survey showed on Monday.
The HSBC manufacturing Purchasing Managers' Index (PMI) eased for the
second month to 52.8 in August, its lowest level since November, from
52.9 in July. However, it has kept above the 50 mark that divides growth
and contraction for more than three years.
"The momentum in the manufacturing sector eased further on the back of
weak external demand and output disruptions caused by the major power
failures in early August," said Leif Eskesen, economist at HSBC.
Sixteen states in northern India, home to almost half of the country's
1.2 billion people, fell into darkness last month as power grids
collapsed, disrupting businesses and economic activity.
Any slowing in the manufacturing sector, which accounts for a little
over 15% of India's gross domestic product, does not bode well for the
overall economy, especially as this sector has been the biggest drag on
growth.
The Indian economy grew 5.5% in the quarter to June, languishing near
its slowest pace of growth in almost three years, data showed on Friday.
With no concrete signs of a resolution to Europe's debt crisis, the new
export orders sub-index - an indicator of prospective overseas business -
fell for the second month in a row to 49.2, its deepest contraction
since October.
The euro zone, India's largest trade partner, has been ravaged by a debt
crisis that began in Greece and appears to be hurting growth in
heavyweight economies like France and Germany, posing further risks to
the Indian economy.
While domestic orders helped increase output in August, the pace of expansion was the slowest since November.
The lone bright spot among the survey's otherwise gloomy data was that
new jobs were created at the fastest pace since the series began more
than seven years ago.
The survey also showed output prices, or what consumers pay for
products, jumped in August and may push India's headline inflation rate
up from July's 6.9%.
At the same time, input price pressures remained elevated, giving little
room for the Reserve Bank of India to act on increasing calls for it to
cut interest rates and support growth.
"While input price rose at a slightly slower pace, output price
inflation picked up due to higher import costs and taxes. With the
slowdown partly supply driven and inflation risks still lingering, these
numbers underscore that the room for policy rate cuts is very limited
at the moment," Eskesen added.
The RBI next meets on Sept 17 and with inflation refusing to ease
substantially the chances of a rate cut appear slim, even with growth
slipping, after the central bank placed the onus of reviving the economy
on the government.
Pending government reforms include allowing foreign direct investment in
the retail and airline sectors coupled with pension and insurance
reforms.
