Bloomberg News

India Manufacturing Growth Moderated in May as Economy Slows

June 01, 2012

Indian manufacturing growth slowed in May, a private survey showed, adding to signs of weakening demand after economic expansion moderated to a nine-year low.

The purchasing managers’ index was at 54.8 in May from 54.9 in April, HSBC Holdings Plc and Markit Economics said in an e- mailed statement today. A number above 50 indicates growth.

India faces challenges from accelerating inflation, a record trade deficit and the impact on Asian exports of the protracted debt crisis in Europe. A similar manufacturing gauge for China signaled a contraction for a seventh straight month, the longest such stretch since the global financial crisis, another report showed today.

“The outlook for growth in the short term is very bad,” Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets Ltd., said before the report. “Industrial growth is slowing down and investments are not taking place.”

The rupee, which touched a record low yesterday, strengthened 0.4 percent to 55.8975 per dollar as of 3:44 p.m. local time. The currency has declined about 20 percent in the past 12 months. The BSE India Sensitive Index of stocks fell 1.6 percent. The yield on the 8.79 percent note due November 2021 declined two basis points, or 0.02 percentage point, to 8.36 percent.

India’s gross domestic product increased 5.3 percent last quarter from a year earlier, the least since 2003, the government said yesterday. Inflation accelerated to 7.23 percent in April, the fastest pace among the largest emerging economies.

Rupee Concern

The government expects that the steps it is taking to bolster economic growth will improve market sentiment, Finance Secretary R.S. Gujral told reporters after a briefing in New Delhi today. He didn’t specify the measures.

The decline in the rupee is a concern, Commerce Minister Anand Sharma said at the briefing. He added India’s goals are to increase exports by 20 percent this fiscal year and to achieve $500 billion of overseas sales by 2014.

The Reserve Bank of India lowered its benchmark repurchase rate to 8 percent from 8.5 percent on April 17, the first cut since 2009, after increasing it by a record 3.75 percentage points from mid-March 2010 to October last year to try and contain jumps in the cost of living.

It has signaled government spending, the rupee’s slide and energy costs may curb scope for more rate cuts. The central bank also forecasts the economy will recover in the fiscal year through March 2013, posting growth of 7.3 percent.

The purchasing managers’ index for China from HSBC and Markit was at 48.4 in May. A PMI from China’s statistics bureau and logistics federation fell to 50.4 in May from 53.3 in April, the weakest pace since December.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net; Tushar Dhara in New Delhi at tdhara1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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