The country's manufacturing activity contracted at its sharpest pace on record in April as a lockdown to combat the rapid spread of the coronavirus led to a slump in demand and massive supply chain disruptions, a private survey revealed. The private survey agency IHS Markit releases monthly Purchasing Managers' Index (PMI) data ahead of official economic data.
The Nikkei Manufacturing Purchasing Managers' Index, compiled by IHS Markit, plunged to 27.4 in April from 51.8 in March, by far its lowest since the survey began in March 2005 and its first time below the 50-mark separating growth from contraction in nearly three years.
The month of April bore the brunt of the ongoing lockdown, aimed at curbing the spread of Covid-19.
"After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April," noted Eliot Kerr, economist at IHS Markit.
The government had placed the entire country on lockdown on March 25 and has now extended it, in the third phase, until May 17, with few relaxations in the orange and green zones.
The widespread business closures severely hampered demand conditions in April. New orders fell for the first time in two-and-a-half years and at the sharpest rate in the survey's history, in April, far outpacing that seen during the global financial crisis.
"Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions," Mr Kerr added.
There were severe supply-side disruption as well, leading to the steepest deterioration in vendor performance since data collection began in 2005.
The record slump in both input and output prices points at a sharp fall in inflation, going ahead. That provides additional room for RBI, which has already cut its repo rate and reverse repo rate by 75 basis points and a cumulative 115 basis points respectively, to ease up further.
The government has already announced a stimulus package of Rs 1.7 trillion ($22.4 billion) to minimize the pain resulting from the Covid-19 induced lockdown.
There are hopes that demand will rebound after the Covid-19 threat diminishes and lockdown restrictions are eased.