NEW DELHI (CU)_As many states across India are beginning to relax some COVID-19 containment measures, concerns have been raised over the impact of the new Delta Plus variant on the already weak economy. Therefore, despite the noteworthy rise in input costs, manufacturers have been increasing output prices at a slower rate with the aim of attracting demand.
However, this was not sufficient to keep a tight rein on the inflation rate which shot up to a six-month high in May, particularly on account of the strong increase in energy and commodity prices. This resulted in a steep decline in consumer demand and factory activity in the South Asian country contracted for the first time in almost a year. In the month of June, the Nikkei Manufacturing Purchasing Managers’ Index, issued by IHS Markit, reached an 11-month low of 48.1, from 50.8 in the previous month.
“The intensification of the COVID-19 crisis in India had a detrimental impact on the manufacturing economy,” IHS Markit’s economics associate director Pollyanna De Lima said. “Out of the three broad areas of the manufacturing sector monitored by the survey, capital goods was the worst-affected area in June. Output here declined at a steep rate due to a sharp fall in sales.” And as demand and output shrank for the first time in almost a year, manufacturers resumed their job cutting spree, albeit at a slower pace.
Meanwhile, given the pressure faced by the already weak economic outlook, IHS Markit also found that optimism about the year ahead has also declined to its lowest since July 2020, although the survey was conducted before the announcement of additional fiscal support by Finance Minister Nirmala Sitharaman.
“Companies became increasingly worried about when the pandemic will end, which resulted in downward revisions to output growth projections. As a result of subdued optimism, jobs were shed again in June,” De Lima noted.
