The manufacturing sector is close to contraction as its index remains just above the crucial 50 mark in July below which indicates contraction as there has been a significant decline in new business orders, says an HSBC survey.

 

According to the HSBC’s purchasing managers index for the manufacturing sector,  it activity level stood at 50.1 in July, slightly more than 50.3 in June, indicating a broad stagnation of manufacturing operating conditions in the economy.

 

For the last three months, the index is barely managing to remain above the crucial 50 mark that divides growth from contraction, but has held above the mark for over four years now.

 

According to HSBC, the output in the manufacturing sector fell for the third consecutive month in July, amid evidence of falling new orders, tough economic conditions and raw material shortages.

 

"Activity in the manufacturing sector was broadly flat in July. Output fell by less, but order flows weakened led by slower growth in export orders," HSBC said. The survey further noted that the pace of increase in the purchasing activity in the Indian manufacturing sector was marginal and the slowest in the 52-month expansionary sequence.

 

Reflecting weak demand conditions there was a decline in new business orders, however, export orders rose for the 11th consecutive month. On price rise HSBC said inflationary pressures persisted in July as output prices rose at the fastest rate since February.

 

"Inflation pressures firmed for both input and output prices, partly on the back of higher imported inflation due to the weaker currency," Eskesen said. The rupee has depreciated by over 12 percent since May this year.

 

"The data suggest that the RBI will likely have to keep policy rates on hold for a while given lingering inflation risks and that the recently introduced currency stabilization measures will not be lifted anytime soon," it added.