The decline in the country’s industrial sector was further deepened in July as re-lockdowns were imposed in several states to prevent the growing infection of coronaviruses. This was said in a monthly survey report of the industrial sector released on Monday. Due to the deepening of the slowdown in the industrial sector, the country’s economy is expected to decline further.
The Nikkei Manufacturing Purchasing Managers’ Index (PMI) fell further to 46 in July. It was at 47.2 in June. Manufacturing PMI has been below 50 for the fourth consecutive month. Thus, the manufacturing sector has recorded the longest period of decline since March 2009. However, amid the expectation that the main interest rate will fall, the PMI report said that the hope of better business in the next 12 months has reached a 5-month high in July.
An index drop below 50 means a drop in production
In PMI terminology, the index below 50 means that the output of the relevant sector has dropped. If the index is above 50, it means that production has increased. The higher the fall or increase in production, the lower or higher than 50 the index is.
Difficulty in getting new contracts due to lockdown
IHS economist Elliot Kerr said companies faced difficulty in securing new contracts. Because their customers were stranded in lockdown. This makes sense that unless the infection is brought under control and unless restrictions are lifted, industrial activity is not going to accelerate.
Expected inflation to fall
Input and output prices continue to fall. This gives hope that inflation will come down. Recently, the inflation rate exceeded the upper limit given to the Reserve Bank of India (RBI). The government has given RBI the responsibility to keep inflation between 2 and 6 percent.
Main interest rate may decrease
Lower inflation has increased the scope for RBI to reduce the main interest rate. To accelerate the sluggish economy due to the coronavirus epidemic, the RBI may further reduce the main interest rate. The RBI has cut the repo rate by a total of 1.15 per cent since March.