November factory activity improves but firms shed jobs for the first time in 20 months

NEW DELHI: Business conditions in the India’s manufacturing sector improved in November but firms shed jobs for the first time in 20 months, a private survey showed on Monday.
The IHS Markit India Manufacturing PMI rose to 51.2 in November from 50.6 in October when it had fallen to a two-year low. It remained above the 50-mark threshold that separates contraction from expansion.

“The latest reading was below the survey average (53.8) and indicated only a slight improvement in the health of the sector,” the survey report showed.

As per the survey, subdued sales prevented hiring in November, with payroll numbers declining for the first time in 20 months. A number of companies indicated that workloads had been managed by existing staff, while others cited the non-replacement of retirees and non-renewal of temporary contracts.

These job cuts have come amid India’s economy growing 4.5% in the July-September quarter, the slowest pace of expansion in over six years. The decline in growth was led by manufacturing, which saw a 1% contraction in gross value added against a 6.9% rise in the corresponding quarter last year.

“Some level of uncertainty regarding the economy was evident by a subdued degree of business optimism. Also, companies shed jobs for the first time in over a year-and- a-half and there was another round of reduction in input buying,” said Pollyanna de Lima, Principal Economist at IHS Markit.

Consumer goods provided the main impetus to overall growth, while the intermediate goods category returned to expansion territory. Conversely, there was a solid deterioration in operating conditions at capital goods makers.

Business sentiment strengthened in November but the Future Output Index was well below its average, as a number of firms were concerned about the state of the economy, according to the report.

“The weakness of these forward-looking indicators suggests that firms are bracing themselves for challenging times ahead,” de Lima said, adding that lack of inflationary pressures in the sector combined with slow economic growth suggests that the central bank will likely extend its accommodative policy stance and further reduce the benchmark interest rate in December.

The Reserve Bank of India (RBI) has already cut its key policy rate by 135 basis points since January. A basis point is 0.01 percentage point. The next monetary policy announcement is due on December 5.