Indian Private Sector Output Expands at Slowest Pace Since April

Kimberly Watson, Editor in Chief
August 07, 2012 /

The health of the Indian private sector continued to improve in July, as signalled by the latest PMI data. The HSBC India Composite Output Index posted 54.4 in July, down from 55.7 in June. The latest reading pointed to the slowest expansion of output in three months.

After adjusting for seasonal factors, the headline HSBC Services Business Activity Index posted 54.2 in July, down from 54.3 in June. Production at manufacturing firms meanwhile increased at a marked pace, but the slowest since November 2011.

New orders at private sector companies in India rose steeply in July.

However, the pace of increase slowed from that recorded in June and the New Orders Index was the lowest since November 2011. The volume of incoming new work expanded in both sectors surveyed, with services firms signalling a faster increase.

Job creation was recorded at manufacturers and service providers during July. The pace of increase was broadly similar across both sectors, resulting in a slight rise in workforces at Indian private sector firms. Services companies stated that workforces were increased in order to meet stronger demand.

With employment increasing at Indian private sector firms, backlogs of work fell slightly. Although services firms accumulated backlogs, manufacturers recorded a modest depletion. That said, the pace of contraction in backlogs was the same as that recorded in June.

Input prices rose sharply at manufacturers in India and at a faster pace than the rise recorded at service providers. Hence, the composite data posted a further increase in input costs, extending the current inflationary period to 40 months. That said, the pace of increase in July was the slowest since October 2010.

Meanwhile, prices charged increased steeply at private sector firms in India. However, the pace of inflation slowed from June data, but remained above the long-run trend for the series.

Service providers reportedly passed higher cost burdens on to their clients as labour and raw material prices increased. Manufacturers stated that fuel, labour and raw material costs increased, leading to the latest adjustment in charges.

Service providers remained optimistic that activity will rise further over the coming year, although the level of sentiment dipped to the lowest since March.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: “Service sector activity grew at a steady pace in July, with growth in new orders and employment holding up. Inflation readings eased, but remain firm on the back of rising wage costs and solid demand. With inflation risks still lingering despite the slowdown and policy action out of Delhi so far insufficient, the RBI has little room to manoeuvre.”


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