Indian manufacturing sector activity drops to 4-month low in April as new orders stagnate

Manufacturing sector activity dropped to a four-month low in April as new orders stagnated during the month following a robust increase in March, a survey showed on Monday, putting pressure on Reserve Bank of India (RBI) to keep interest rates low.

The seasonally-adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI) -- a composite indicator of manufacturing performance -- fell from 52.4 in March to 50.5 in April, pointing to the weakest improvement in business conditions in the current four-month sequence of above 50 readings.

A reading above 50 represents expansion while one below this level means contraction.

"PMI data for India show a marked slowdown in output expansion during April, as growth of new work ground to a halt following a robust increase in the prior month," Pollyanna De Lima, Economist at Markit and author of the report said.

Following three consecutive months of growth, Indian manufacturers saw incoming new orders broadly stagnate in April. Though new work from abroad continued to increase, nonetheless, new export orders expanded at the slowest pace since last October.

Regarding employment, the survey said, manufacturing sector hiring remained broadly unchanged - a trend that has been evident for almost two years.

On the price front, input costs increased at the fastest rate in 11 months, whereas charge inflation eased since March.

"A softer overall increase in output prices meanwhile suggests a strongly competitive environment, as cost inflation in fact accelerated to the fastest since May 2015," Lima added.

In the first bi-monthly monetary policy review for 2016-17 announced on April 5, RBI governor Raghuram Rajan reduced the key interest rate by 0.25% and introduced a host of measures to smoothen liquidity supply.

While this was the first rate cut after a gap of six months, RBI has lowered its rate by 1.5% cumulatively since January last year.

However, the industry still wants further rate cuts from the central bank to boost investment.