New Delhi: Surging prices of commodities and global crude oil have contracted India’s manufacturing activity in March, according to a report by Reuters.
A recent survey showed that factory activity expanded at a slower pace in March and output grew at their weakest rate since September and optimism at a two-year low.
The survey, compiled by S&P Global, pointed out that India’s economy is slowing.
In the report, the news agency has said that hikes in oil prices, primarily due to the ongoing Russia-Ukraine war, have already taken a toll on consumer spending, the biggest contributor to GDP growth.
The Manufacturing Purchasing Managers’ Index (PMI) declined to 54.0 in March from 54.9 in February. However, it has remained above the 50-level separating growth from contraction for nine straight months. Despite that decline, the sector had its best annual fiscal year performance since FY11-12.
India, like other major world economies, is witnessing a persistent surge in inflation because of supply disruptions and a surge in crude oil rates, the biggest component of the country’s imports.
India is majorly dependent on imports with 85 per cent of oil being imported for meeting its oil needs. The retail rates are changed in tune with the movement in global prices.
Quoting Pollyanna De Lima, economics associate director at S&P Global, Reuters mentioned, “Manufacturing sector growth in India weakened at the end of FY21-22, with companies reporting softer expansions in new orders and production. 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.”
According to the report, sub-indexes tracking new orders and output were at six-month lows and foreign demand contracted for the first time since June 2021, highlighting a weakening global economic recovery and a slump in China.
The headcounts in factories increased for the first time in four months. However, rising cost pressures remained one of the main concerns as companies faced a faster increase in input prices last month, forcing them to transfer some of that burden to consumers. Output prices rose at the quickest rate in five months.
De Lima said, “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,” while adding, “Companies themselves appeared very concerned about price pressures, which was a key factor dragging down business confidence to a two-year low.”