A frequently cited industry survey shows manufacturing activity stalling during the pandemic after initial signs of recovery, which is attributed to renewed lockdown by state governments, while raising concerns of a sharper economic contraction.

Data released by the analytics firm IHS Markit showed purchasing managers' index (PMI) for manufacturing declining slightly in July to 46 from 47.2 in June, marking its longest spell of contraction since March 2009. A figure of above 50 indicates expansion, while sub-50 signals contraction.

This is the fourth straight month of contraction for the Indian manufacturing sector. In April, the index had slipped into the contraction mode, after remaining in the growth territory for 32 consecutive months.

“Latest PMI data from Indian manufacturers shed more light on the state of economic conditions in one of the countries worst affected by the Covid-19 pandemic,” said Eliot Kerr, economist at IHS Markit.

The survey results showed a faster declines in the key indices of output and new orders, undermining the trend towards stabilisation seen over two months.

He said anecdotal evidence indicated that firms were struggling to obtain work, with some of their clients remaining in lockdown. “This suggests that we won't see a pick-up in activity until infection rates are quelled and restrictions can be further removed,” Kerr said.

“The small drop in July’s manufacturing PMI adds to signs elsewhere that the post-lockdown recovery is stalling. Looking ahead, the road back to normality for the manufacturing sector will be slow and fitful,” Darren Aw, Asia economist, Capital Economics said.

A breakdown of data showed that the output component fell to 44 in July from 46.7 in June. The new orders component decreased from to 45.6 frm 46.4.

“We interpret this as a sign that the manufacturing recovery is beginning to stall. Although there are signs that the world trade has passed its trough, there are still reasons to think that the recovery in external demand will be lacklustre. All of this indicates a long and winding road back to normality,” Aw said for the manufacturing sector.”

As per the survey, output contracted at a slightly faster pace than in June as demand conditions remained subdued with some businesses still closed amid lockdown extensions.

Moreover, export orders also witnessed a decline. Survey participants commented that international clients were hesitant to place orders while the duration of the pandemic remained uncertain. Deteriorating demand conditions led Indian manufacturers to continue cutting staff numbers during July.