Chennai Floods Eat into Mfg Output, Shrinks for First Time in Over 2 Years

India’s manufacturing sector output in December fell to a 28-month low, partly due to heavy floods in Tamil Nadu.

Published: 05th January 2016 04:20 AM  |   Last Updated: 05th January 2016 04:23 AM   |  A+A-

CHENNAI:  India’s manufacturing sector output in December fell to a 28-month low, partly due to heavy floods in Tamil Nadu.

Incessant rains in the manufacturing belt of Tamil Nadu last month added to the slow down in new orders and besides affecting existing production pipeline.

The Nikkei India Manufacturing PMI (Purchasing Managers’ Index), a composite monthly indicator of manufacturing performance, dipped from 50.3 in November to 49.1 in December. A figure above 50 indicates expansion, while the one below implies contraction.

Chennai.jpgThis is the lowest level of the Index since March 2013. The PMI slipped below the crucial level of 50 for the first time since October, 2013.

“India’s manufacturing sector took a turn for the worse at the year-end, with already-gloomy internal demand further hampered by floods in the south of the country. Such was the extent of the decline that the rate of reduction was the sharpest since the financial crisis,” said Pollyanna De Lima, Economist, Markit.

The monthly PMI survey showed the rate of contraction was sharpest in almost seven years since the global financial crisis.

December’s incessant rainfall in Chennai impacted heavily the manufacturing sector, with lower orders leading companies to scale back output at the sharpest pace since February, 2009.

The survey further noted the decline in manufacturing sector production was largely owing to a contraction in incoming new work for the first time since October 2013. About 18 per cent of the survey panelists reported lower levels of new orders, which they commonly linked to heavy rains weighing on domestic demand. December’s floods also affected supplier performance, which deteriorated to the greatest extent since March, 2013.

On the price front, the survey said inflation rates of both input costs and output charges were at seven-month high. “The continued depreciation of the rupee against the US dollar pushed inflation higher, with PMI price indicators pointing to stronger rise in both input and output prices,” Lima said.

Given a sharp deterioration in manufacturing output in China as well, experts believe that the global headwinds can make things even worse for the Indian markets, which will add to the pressures on RBI to keep rates low.

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