India Manufacturing PMI Hits 8-Year Low on Sales Tax Disruption

(Bloomberg) -- A private gauge indicates that India's manufacturing output slid to the lowest since the financial crisis as the roll out of a new nationwide sales tax disrupted supply chains across the country.

The Nikkei India Manufacturing Purchasing Managers' Index was at 47.9 in July, lowest since February 2009. A number below 50 indicates contraction. However, the outlook for the year ahead remains positive with companies expecting more clarity about the goods and services tax to boost growth, Pollyanna De Lima, principal economist at IHS Markit, wrote in a report on Tuesday.

“The weakening trend for demand, relatively muted cost inflationary pressures and discounted factory gate charges provide powerful tools for monetary policy easing, which has the potential to revive economic growth," De Lima wrote.

The data comes a day before the central bank's interest rate decision, widely seen as Governor Urjit Patel's last chance through 2018 to stimulate the economy before the Federal Reserve begins reducing its balance sheet. The Reserve Bank of India will cut its benchmark repurchase rate to 6 percent from 6.25 percent, according to 41 of 57 economists in a Bloomberg survey with the rest seeing no change.

To contact the reporter on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net.

To contact the editor responsible for this story: Ruth Pollard at rpollard2@bloomberg.net.