Manufacturing activity in India slackened in October as new orders stagnated in the wake of subdued demand conditions, largely due to "negative impacts" of GST, a monthly survey said today.
The Nikkei India Manufacturing Purchasing Managers' Index (PMI) fell to 50.3 in October, from 51.2 in September, indicating a "broad stagnation" in the manufacturing sector.
This is for the third consecutive month that the index has come in above 50 that separates expansion from contraction.
The decline in manufacturing activity was mostly because of stagnation in new business as "negative impacts" of GST led to subdued demand conditions. Moreover, new export orders dropped at the fastest pace since September 2013.
"India's manufacturing companies struggled somewhat as the recent recovery enjoyed by the sector lost impetus in October," said Aashna Dodhia, Economist at IHS Markit and author of the report, adding that "manufacturing production rose at the weakest pace in the current sequence of growth".
Dodhia further noted that "inflows of new orders stagnated as the negative effects arising from implementation of GST continued to dampen demand levels. Furthermore, overseas demand for Indian goods dipped to the greatest extent since September 2013".
The silver lining, however, is firms added to their payroll numbers at a similar pace to that of September in response to greater volumes of outstanding business.
On the price front, input cost pressures rose at the fastest pace since May. Subsequently, firms reportedly raised their output prices to pass on greater cost burden to clients and protect their profit margins.
Meanwhile, the level of business confidence eased to the weakest since February.
"Business confidence eased to the weakest since February as some firms expressed concerns over negative GST effects.
However, those manufacturers that were optimistic forecast benefits of GST materialising over the next 12 months," Dodhia added.
The October manufacturing PMI data comes in sharp contrast to the robust show by India on World Bank's Ease of Doing Business ranking. India jumped 30 notches to the 100th place in the latest compilation.