India’s manufacturing PMI in July hits 8-year low on GST disruption

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Mumbai: A gauge of India’s manufacturing activity in July plunged to the lowest since February 2009 because new orders and output dropped following the rollout of the goods and service tax (GST).

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) for July was at 47.9 which also marked the first deterioration in business conditions in 2017. This reading compares with 50.9 for June. A reading of below 50 indicates contraction.

The current manufacturing PMI for India is lowest among a group of 20 nations.

“Incoming new work dropped for the first time in the year-to-date and at the steepest pace since early 2009. Anecdotal evidence indicated that the GST launch hampered demand. Different to the trend for total order books, new export orders continued to rise in July,” said a statement from IHS Markit which compiles the PMI report.

However, the outlook remained positive in July because companies are expecting clarity on the GST, which will support growth, the report said.

The data, released a day before the Reserve Bank of India’s monetary policy committee, has further strengthened the case for rate cut spur economic activity, according to economists. This, along with a record fall in inflation gives room for the central bank to go for monetary easing.

On Monday, the government data showed that the growth in eight core sectors, which accounts for 41% of the total factory output, slowed to 0.4% in June as output of coal, refinery products, fertilisers and cement contracted.

“The weakening trend for demand, relatively muted cost inflationary pressures and discounted factory gate charges provide powerful tools for monetary policy easing which has the potential to revive economic growth,” said Pollyanna De Lima, principal economist at IHS Markit.