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India's April manufacturing PMI remains steady

HSBC India Manufacturing PMI stood at 51.3 in April, unchanged from 51.3 in March

India’s manufacturing sector growth remained steady in April as a slowdown in export orders was countered by firmer domestic demand during the month, says a survey.


The HSBC India Manufacturing Purchasing Managers’ Index (PMI), a measure of factory production, stood at 51.3 in April, unchanged from 51.3 in March, amid moderate expansion of incoming new business orders.


Activity in the sector expanded for the sixth consecutive month in March. A PMI reading above 50 indicates growth, while a lower reading means contraction.


“The momentum in the manufacturing sector held broadly steady, with domestic demand countering a slowdown in export orders,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.


Eskesen added: “A build-up in finished goods inventories could weigh on output growth in the coming months in the absence of a pick-up in demand.”


During April, the momentum in manufacturing held broadly steady, but the growth remains subdued.


“Output is held back by lack of power capacity and soft demand, with external demand easing recently and, anecdotally, due to a decline in order for investment goods.


“While we may get more traction on economic reform and implementation of investment projects post elections, it will still take a while before we see a notable and more sustained lift to activity,” HSBC said.


Though there were signs of easing inflation pressures in the manufacturing cluster, however, consumer price inflation remains elevated.


“Encouragingly, inflation pressures eased, but that does not mean that the RBI can take down its inflation guards,” Eskesen said.


Moreover, the El Nino is expected to lead to below-normal precipitation, which could lift food inflation over the summer and into the fall. The Reserve Bank of India (RBI) will, therefore, not have much to cheer about and will need to maintain a hawkish stance, HSBC added.


The RBI had increased the key policy repo rate three times since Dr Raghuram Rajan took over as Governor in September.


UPA government's dilemma on new gas price

If the UPA government announces new gas pricing while in power, but after 12th May, they will be damned and if they don't, they will still be damned!  The Manmohan Singh government is most likely  handover this responsibility to new government

The general election process will be completed, technically, when the polling ends on 12th May, but final results will be announced only by 16th May.  However, in line with the directives issued by the Election Commission and to maintain the sanctity of model code of conduct, the new pricing formula for gas supplies from Krishna-Godavari Basin (KG) D6 block was postponed till the polling completion.  It should automatically follow that the new price applicable will be announced on 13th May by the Government.

Reliance Industries Ltd (RIL) has appealed to the Oil Ministry that the new price, expected to be about $8.34 per million metric British thermal unit (mmBtu)  be announced retroactively applicable for supplies effected from 1 April 2014, since the production sharing contract (PSC) expired on 31st March.

It may be recalled that for the previous five years ending on 31st March the price of gas from KG-D6 was fixed at $4.205 per mmBtu. Currently, Reliance supplies gas to sixteen fertilizer units, details of which were recently covered in Moneylife. KG-D6, which at one time produced some 60 million cubic metres a day has now a trickling supply of only 13 mmBtu for the above units. Fall in production has been attributed to natural or geographical surprise, experienced by Reliance, which has also been noticed in many other countries.

Although the old price of $4.205 per mmBtu expired as on 31st March, in order not to disrupt supplies on the ground of non-availability of price factor, Reliance has been supplying gas to the fertilizer units, maintaining a stand that whenever the new price is fixed by the Government, it will be applicable, retroactively, from 1st April. In fact, at one time, Reliance had sought to obtain additional Letters of Credit for the "expected" price differential but the fertilizer firms had declined to do so. Fresh contracts between Reliance and the Fertilizer units have not been signed, as a
sequel, and is likely once the price is fixed by the government.

At the moment 23 million tonnes of Urea is produced in the country and it is reported that the overall impact of every dollar increase in price (of gas) will be Rs3,155 crore annually.

In the meantime, the Director General of Hydrocarbons (DGH) had sought to take away, from Reliance, three gas finds, said to hold an estimated reserves of 345 billion cubic feet of recoverable gas, as these were discovered after the expiry of timelines. DGH had stated that Reliance had failed to prove their commercial ability by not conducting the prescribed tests.  However, Oil Ministry is already moving the Cabinet to allow Reliance to retain these finds, estimated to be worth 1.45 billion in the eastern offshore of KG D6 block. This sort of bureaucratic clerical attitude must change and look at the broader perspective of how such actions will affect the country. The country needs the gas to move forward.

The issue is not favourable attitude shown to Mukesh Ambani or Reliance by the current government but the issue has been in "process" much before the announcement of election. The present government has every right to decide the issue on their own or leave it to the incoming new government.

Time is the essence of contract, and it would be in the interest of the nation to move forward on all matters, bearing in mind what is good for the country and its people.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


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