Economy showing signs of fatigue

09:03 AM Jun 02, 2019 |

Manufacturing PMI grows at its slowest pace in four months while core sector growth slows to 5.2 pc

FPJ BUSINESS DESK Mumbai After firing on several counts in 2010,

the Indian economy is showing signs of moderation. Growth in infrastructure industries, with a weight of 26.68 per cent in the index for industrial production, slowed to 5.2 per cent in April.


Indiaalt39s manufacturing PMI reversed the uptrend seen in the past few months, falling by 0.5 points to 57.5.


This was due to a fall in output, new orders and new export orders. The disturbing data comes on the back of a disappointing fourth quarter GDP for fiscal 2010- 11, wherein the economy grew at its slowest pace in five quarters by 7.8%. Crude oil, petroleum and refinery products, coal, electricity, cement and finished steel – constituting the index of six core industries – registered a growth of 5.8 percent in the last fiscal and 7.5 percent in April 2010.

The six core industries had grown by a much faster 7.4 percent in March 2011. A sharp fall in input prices and moderation in inventories added to manufacturing woes. Industrial production, as measured by the IIP, stood at 7.3 per cent in March, compared to 15.5 per cent expansion in the same month of 2010.

Both external demand as reflected in alt39 New Export Ordersalt39 as well as domestic demand as reflected in alt39 New Ordersalt39 posted a moderation.

The fall in export orders is likely due to weaker demand from the US and China and debt concerns in the EU. Rising interest rates hurting demand Rising borrowing costs is beginning to hurt demand, reflected in slowing auto sales, decline in cement output and lower growth in finished steel production. With headline inflation staying above 8 per cent, beyond the comfort zone, RBI may not rest easy.

" There is a slowdown in investments and this has been reflected in the performance of the core industries.

Besides, the latest GDP data has proved that the economy has entered a period of moderate growth and it is likely to remain so for 5- 6 months," Standard Chartered head of research Samiran Chakraborty said.

He, however, said the base also has a role to play in the low numbers.

" The growth was very strong in April, 2010, and this has also got reflected," Chakraborty said.

" It is going slower in pace, which is not a healthy trend… The interest rates are high, which are going to create some pressure on the growth rate. We are going to witness a moderate growth as inflationary pressures will be there," Crisil Chief Economist D K Joshi said.

Chakraborty also cited inflationary pressure and the resultant rate hikes as a matter of concern.

According to global research firm Macquarie, inflation has surprised negatively for the past few months and continues to pose a challenge on the policy front and may rise further if government decides to go for diesel price deregulation.

" We believe rising commodity prices threaten to keep inflation high for a prolonged period by feeding into a wider range of goods and services. This may become accentuated later in the year if the government decides to deregulate diesel prices," Macquarie said.

The Macquarie report further noted that there is a possibility of inflation touching double digits and leading to further aggressive rate hikes.

The Reserve Bank has already hiked its key policy rates nine times since March, 2010, to curb demand and tame

(To receive our E-paper on whatsapp daily, please click here. We permit sharing of the paper's PDF on WhatsApp and other social media platforms.)

(To view our epaper please Read Now. For all the latest News, Mumbai, Entertainment, Cricket, Business and Featured News updates, visit Free Press Journal. Also, follow us on Twitter and Instagram and do like our Facebook page for continuous updates on the go)


Trending :