Indian Production Increases at Weakest Rate in 9 Months

August 02, 2012 /

Manufacturing companies in India signalled an increase in output during July amid reports of growing new orders, though the pace of expansion was the slowest in the past eight months.

New orders continued to rise but at the weakest rate since last November as new export orders fell for the first time since October 2011.

Anecdotal evidence suggested that the global economic slowdown affected
export markets, leading to weaker demand. Moreover, dollar appreciation was mentioned as a driver behind falling export business.

Job creation was recorded at manufacturing firms in India during July. The rate of increase was only modest, and eased since June. Panellists reportedly recruited more labour in line with higher production.

Meanwhile, the volume of work-in-hand (but not yet completed) fell
moderately. This was the first contraction in backlogs of work recorded since September 2011.

Manufacturing firms in India signalled rising charges during July. Output price inflation has persisted in the sector for 35 successive months.

However, the rate of increase during July slowed from the reading in the
previous month. Input costs also rose and, in line with charges, at a slower pace than June. Respondents stated that factory gate prices were increased to reflect rising fuel, labour and raw material costs.

Additionally, dollar appreciation was mentioned as a factor leading to rising charges.

Post-production inventories were accumulated in July, but at a slight pace. Panellists reportedly accumulated stocks of finished goods as demand was weaker-thananticipated. Meanwhile, pre-production inventories were broadly unchanged.

Quantity of purchases in the Indian manufacturing sector increased moderately, with the pace of increase being the slowest since September 2011.

Manufacturers stated that input buying rose in line with increasing new orders. Average lead times were little moved from June with the majority (96%) of manufacturers reporting that vendor performance was unchanged.

Moreover, the index posted below its long-run average.

Leif Eskesen, Chief Economist for India & ASEAN at HSBC said: “Manufacturing activity grew at a slower clip in July on the back of power outages and a moderation in new order inflows, with the weak global economic conditions dragging down export orders.

“Moreover, orders decelerated faster than inventory accumulation
suggesting that the more moderate expansion in output will continue in the months ahead. The slowdown in order growth allowed manufacturers to reduce backlogs of work. Moreover, input and output prices decelerated, but inflation remains above historical averages.”


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