INDIA’S manufacturing activity skidded to a 50-month low in May, a widely watched survey showed on Monday (June 3), fuelling concerns about Asia’s third largest economy.
The numbers were grim reading for the Congress government which hopes for an economic upturn before elections due by next May. It followed data last Friday (May 30) showing growth of five per cent in the 2012-2013 financial year, the weakest in a decade.
The overall Purchasing Managers’ Index (PMI) from HSBC, which gives a snapshot of manufacturing health from output to jobs, fell to 50.1 in May from 51.0 in the previous month as domestic orders tailed off.
The May PMI finding, based on data from manufacturing firms, was the lowest since a below-50 reading in March 2009.
The narrower factory output index also slumped to a 50-month low, hitting 48.6 in May from 50.2 in April and crossing the crucial divide from expansion to contraction.
A reading of over 50 spells expansion of activity while one below 50 indicates shrinking.
Low business confidence, slumping investment, high inflation and weak export demand from Western countries are blamed for the poor performance of the once-booming South Asian economy.
Despite government efforts to talk up the economy after a burst of pro-market reforms at the end of last year, most independent analysts see continuing slack demand and few quick fixes.
Global ratings agency Standard and Poor’s warned earlier this month that India faces at least ‘a one-in-three’ chance of losing its prized sovereign grade rating amid new threats to economic growth and reforms.
India’s BBB-minus investment rating is already the lowest among its BRICS peers Brazil, Russia, China and South Africa, and cutting it to ‘junk status’ would raise the country’s hefty borrowing costs.
Government pressure has mounted on the central bank to ease borrowing costs after it raised interest rates aggressively in 2010 and 2011 to combat double-digit inflation last year.
It has obliged by cutting interest rates three times in 2013, but Reserve Bank of India governor Duvvuri Subbarao has said the bank has ‘limited space’ to ease monetary policy further due to the risk of inflation flaring up again.
