While Reserve Bank of India (RBI) governor Raghuram Rajan and several economists expect the Indian economy to grow faster this fiscal, the Nikkei India Composite Purchase Manager’s Index (PMI) Output Index by Nikkei/Markit shows the economy continues to sag.
What is worrying is that seasonally adjusted PMI Output Index dropped below the crucial 50 mark to 49.2 in June, falling from 51.2 in May, the first time since April 2014 (see chart). Nikkei India Composite PMI Output Index is a measure of private sector activity in both services and manufacturing.
The 50-mark separates contraction from expansion and the 49.2 reading in June 2015, therefore, indicates that the private sector contracted during the month. The output index contracted, reflecting a steeper reduction in new business. Business activity fell in transport and storage, post and telecommunications, financial intermediation, renting and business activities and other services.
Data indicate that the economy is not improving and gross domestic product (GDP) growth may have weakened in the June quarter, dousing hopes of a recovery. “Growth of manufacturing production was insufficient to offset the decline in services output and private sector activity fell for the first time since April 2014 during June. The Composite Output Index fell from an average reading of 53.3 in January-March to 51.0 in the three months to June, suggesting GDP growth weakened in April quarter,” said Pollyanna De Lima, economist at Markit.
The MNI survey on 2 July had also pointed out that consumer sentiment remains fragile, with consumers increasingly wary of their finances and less inclined to make big-ticket purchases despite the rate cut on 2 June. These data points seem to indicate that the economic recovery may be some time away
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