India's Manufacturing Sector is Healthy

Aug. 3, 2009
But exports dropped 28%

Reflecting strong domestic demand for cars and other goods, India's manufacturing remained healthy. Its exports, however, plunged for a ninth straight month in June, official data showed on August 3.

Local carmakers, for instance, have reported a surge in sales with the nation's largest auto manufacturer, Japanese-owned Maruti Suzuki, announcing on August 1 a 33.4% jump in sales in July to 78,074 units.

Exports shipments slid 28% in June from a year earlier to $12.8 billion amid weak global appetite for made-in-India goods from jewelery to garments. But the rate of export decline slowed from earlier months.

And a separate survey showed factory output expanding for a fourth month in a row in July as government stimulus and interest rate cuts has spurred domestic demand. New orders hit a nine-month peak.

The figures, on top of a better-than-expected corporate earnings season, were the latest sign Asia's third-largest economy may be on the mend. "The rate of the fall (in exports) has been coming down," said Harsh Pati Singhania, head of the Federation of Indian Chambers of Commerce and Industry. But it is "imperative that the foreign trade policy addresses exporters' difficulties effectively and the momentum in export growth be restored," Singhania added.

Imports also fell, by 29% to $19 billion, largely reflecting a decline in global oil prices while the trade deficit narrowed to $6.16 billion in June from $9.12 billion a year earlier.

Unlike China, where overseas sales have been a main growth driver over the past three decades, exports account for just 15% of gross domestic product in India's still relatively inward-looking economy. Economists say this, along with its vast domestic market of nearly 1.2 billion people, has helped shield the economy from the impact of the worst global slump since the 1930s.

"Lackluster exports are still dragging on India's overall economic performance," said economist Sherman Chan. But the pace of decline in India's exports was falling, Chan said. And as global prospects "are now improving, especially with the U.S. economic contraction easing, India's exports may begin to recover later in the year."

The manufacturing survey, meanwhile, showed output continuing to recover. The Markit Economics Purchasing Managers Index (PMI) for July, which surveys 500 companies in India, was 55.3. Any reading over 50 indicates expansion while below 50 is contraction. "Business conditions in India's manufacturing economy continued to strengthen" with the domestic market the primary growth driver, said Gemma Wallace, an economist at Markit Economics.

Copyright Agence France-Presse, 2009

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