By Rahul Karunakar
BANGALORE, Sept 3 (Reuters) – 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 percent 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 percent 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, t he 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 percent.
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.
(Editing by Kim Coghill)
