India’s manufacturing growth in August fell to its lowest level in 15 months, signalling that the country’s alarming slowdown is continuing and raising pressure on re-elected prime minister Narendra Modi to expand economic stimulus.
The IHS Markit Indian manufacturing purchasing managers’ index showed growth dropping to 51.4 in August, down from 52.5 in July and the lowest level since May 2018. A reading above 50 signals expansion. However, a drop in spending on items such as raw and semi-finished materials suggested that the slowdown would probably continue to weigh on production.
“Until manufacturers are willing to loosen the purse strings, it’s difficult to foresee a meaningful rebound in production growth on the
horizon,” said Pollyanna de Lima, IHS Markit’s principal economist.
The figures came after some of India’s largest automobile manufacturers on Sunday reported steep drops in domestic sales for August with Maruti Suzuki reporting a 36 per cent fall and Tata Motors a 49 per cent decline from a year earlier. The disappointing data follow news on Friday that gross domestic product growth fell to a six-year low in the quarter ending in June.
The unravelling in what was until recently touted as the world’s fastest-growing large economy could prove one of the biggest challenges for Mr Modi’s administration, which was elected for a second term in May.
Indian business groups have become increasingly vocal about the need for government intervention. The slowdown is “a matter of deep concern”, said Sandip Somany, president of the Federation of Indian Chambers of Commerce and Industry, one of the country’s largest business organisations.
Finance minister Nirmala Sitharaman has in recent weeks announced measures including a government car-buying spree and accelerating consolidation of public-sector banks. Ms Sitharaman on Sunday also suggested cutting taxes on automobile manufacturers, according to local media.
But data such as the manufacturing PMI, which registered the first drop in material purchases in more than a year, suggest that a rebound may be slow to come.
Darren Aw, of Capital Economics, said the government had more flexibility to implement stimulus measures after receiving a bumper Rs1.7tn ($24.8bn) payout from the Reserve Bank of India last week.
