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No respite for manufacturers as inflation continues to weigh on the economy

The Indian economy is ‘by no means out of the woods on the inflationary front,’ an economist said.
There is no respite for Indian manufacturers anytime soon as slow demand and high inflation continue to weigh on the nation’s economy, a report said.

The seasonally adjusted S&P Global India Manufacturing Purchasing Managers’ Index (PMI) fell to 53.9 in June from 54.6 in May, the weakest pace of growth since last September. In PMI parlance, a print above 50 means expansion, while a score below 50 denotes contraction.

Easing in price pressures was in part because of lower commodity prices, said Adam Hoyes, an assistant economist at Capital Economics Ltd, quoted Mint. Hoyes added, “However, slower growth in demand and the first decline in suppliers’ delivery times since February 2021 are likely to have played a role too.” He said the Indian economy is ‘by no means out of the woods on the inflationary front.’

As India’s business optimism sild to a 27-month low of 50.9, which was lower than that of global and Asian regions, economists say they do not see a respite for manufacturers from cost inflation in the near term, a report by Mint said.

“At the moment, it is a bit too early to conclusively say that things are getting better on the inflation front for Indian manufacturers. The tax changes that were announced on Friday will have some inflationary impact,” said Barclays’ MD and chief India economist Rahul Bajoria, quoted Mint.

Last week, the central government imposed additional excise duty on petrol and diesel export while raising the import duty on gold. Experts said that this move would put pressure on the fiscal deficit, which has been estimated at 6.4 per cent of GDP for the current financial year.

While the rates of some food items, such as palm oil, and soybean, have reduced, the pass-through into inflation will take some time, Barclays’ economist said.

“So though we are not seeing an incremental inflationary pressure, it would take time for inflation to reduce meaningfully,” Mint quoted Bajoria.

Experts also expect the Reserve Bank of India to further hike interest rates in its upcoming policy meetings to tame inflation.
Source: Business Standard

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