Economic Activity Contracts in India with PMI at 30.8 in May

Economic Activity Contracts in India with PMI at 30.8 in May

Indian government announced opening up of many sectors during May. However, the government should move ahead and allow opening up of travel and economic activity to the levels seen before lockdowns. Strict health and safety protocols should be followed by local governments should help businesses get back to normal. If small businesses start announcing lay-offs of their employees, Indian government would be staring at another major trouble after COVID-19.

IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) stood at 30.8 in May, up from 27.4 in April. But, economists are still concerned about the pace at which Indian economy could get back on the track. Many sectors are facing major distress and Indian government should step in and help local business owners.

Indian businesses have the opportunity to get back to pre-COVID levels and be competitive. As the sentiment against China has been growing across Europe and North America, Indian exporters can win big orders for the products manufactured in India. The government has announced stimulus packages to help micro, small and medium businesses to access credit. More support from the government will be needed in near future. Many Indian businesses can provide quality products for international markets at competitive prices. However, they need access to world markets and they also need access to resources.

Chinese small and medium businesses have platforms like Alibaba and other online platforms where buyers from all over the world can safely transact with local Chinese businesses. However, India lacks any such big platform. India would need a major platform that could challenge Alibaba in China. IndiaMart is one such platform but their reach and scale is much smaller compared to the platforms in China.

“The latest PMI data suggested that Indian manufacturing output fell further in May. This result is particularly poignant given the record contraction in April which was driven by widespread business closures,” said Eliot Kerr, economist at IHS Markit.

“The further reduction in May highlights the challenges that businesses might face in the recovery from this crisis, with demand remaining subdued while the longevity of the pandemic remains uncertain,” Kerr added.

Indian GDP growth reduced to 3.1 percent for the quarter ending in March 2020 to its lowest level seen since 2008 global financial crisis. Economists are expecting further contraction in economy if the sectors don’t manage to pick up in June 2020.

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