Factory activity in India experienced a slow down from March 2022 amid rising costs of production and a decline in the non-food industry consumption rate. Apple is among the companies that have already raised prices of their products in India. Recent surveys show optimism rates at 2020 low as outputs weaken strongly for the first time since September 2021.
According to the pocket option broker, wild oil prices driven by the uncertainties arising from the Russia-Ukraine conflict are suffocating factory activities and taking a major toll on consumer spending at the same time. A decline in household spending-the biggest contributor to GDP- is set to shake the entire economy.
“Manufacturing sector growth in India weakened at the end of the fiscal year 2021/22, with companies reporting softer expansions in new orders and production,” noted Pollyanna De Lima, economics associate director at S&P Global.
“The slowdown was accompanied by an intensification of inflationary pressures, although the rate of increase in input costs remained below those seen towards the end of 2021.”
On the other hand, India’s Monetary Policy Committee unanimously voted to uphold repo rates at 4% and left an allowance for a future rate hike. De Lima seems to support this decision arguing that consumer spending is still stable enough to necessitate a rate hike.
“For now, demand has been sufficiently strong to withstand price hikes, but should inflation continue to gather pace we may see a more significant slowdown, if not an outright contraction in sales,” added De Lima.
“Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low.”
The tightening supply chain bottlenecks are worsening the situation in factories. “Today’s figures show the worsening supply chain situation is having a major impact on the industry, with rates of both input costs and selling price inflation currently far above anything previously seen.” Said Thomas Rinn of Accenture.
The Manufacturing Purchasing Manager’s Index, S&P Global, shorted down to 54.0 in March, a decline of 0.9 in one month. It however held above the 50 level support line setting apart growth from a slowdown.
This comes at a time when the entire Asian continent is facing a production strain led by China, the biggest manufacturing hub in the region. Although Japan’s economy was recovering with the fast decline in Covid 19 infections, stubbornly high prices of grains energy clouds the future outlook. China’s primary challenge is the growing capital requirement for raw materials and labor costs. South Korea’s output and exports of new products have slowed down to a two years low indicating the pain is being felt across the entire continent. Taiwan, Malaysia, and Vietnam have not escaped either.
Like the US, India is also facing threats of elevated inflation. Recent reports indicate sustained inflation of more than 6%. Although the rate is not far from the RBI’s comfort zone, the steady uptrend is something to worry about. Output prices are at a five-month high and firms are left with no option but to transfer the burden to the final consumer. This will in turn lower demand and further hurt the already weakening manufacturing sector. The RBI is keenly monitoring the situation to determine the best policies for the long-term stability of the economy.
