Manufacturing shrinks in July, economy in shambles

The pandemic has been harsh on the Indian economy, the manufacturing sector has been shrinking continuously due to the losses to the industries, the lack of demand continues. There seems no respite from the pandemic as the government has no solid plans to fight the virus and revive the hampered economy.

India’s manufacturing output in July contracted at a faster pace than in June, indicating that sporadic local lockdowns at a time of muted demand are hurting business activity at the national level, potentially delaying economic recovery.

Data released by analytics firm IHS Markit showed that Purchasing Managers’ Index (PMI) for manufacturing declined slightly in July to 46 from 47.2 in June.

Eliot Kerr, an economist at IHS Markit, said the survey results showed a “re-acceleration of declines" in the key indices of output and new orders, undermining the trend towards stabilization seen over the past two months.

“Anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown, suggesting that we won’t see a pickup in activity until infection rates are quelled and restrictions can be further removed," he added.More than two months after imposing a harsh nationwide lockdown to curb coronavirus infections, the central government lifted many restrictions on 1 June, allowing most business activities to resume; however, new disease hotspots emerged in the southern and eastern Indian states soon after, prompting local authorities to put fresh mobility restrictions, disrupting business again.

During an interaction with journalists, Union finance minister Nirmala Sitharaman said a complete picture about growth recovery is yet to emerge, “As long as the pandemic is active, we are talking about a situation full of uncertainty," she added.

Indian Oil Corp. Ltd (IOC), the country’s largest fuel retailer,  said its capacity utilization, which had increased to around 93% in the first week of July, has fallen to 75% after many state governments imposed fresh curbs.Madan Sabnavis, chief economist at Care Ratings, said the latest decline in PMI is indicative of the fact that supply chains have not yet been cemented and the localized lockdowns have affected production.

“Also, notwithstanding the unlock process, households are still not free to move to provide a push to the consumption cycle. Further, the beginning of the monsoon has impacted both construction and other infrastructure work, thus pushing down the PMI," he added.

The International Monetary Fund (IMF) said high-frequency indicators signal a plateauing of economic activity in India, as the positive impact from unlocking is not as strong as the negative impact of the lockdown. It urged the government to contain the spread of the coronavirus pandemic on a priority to make the economic recovery sustainable.