Factory output picks up
Manufacturing growth at 4-month high; Inflationary pressure remains
Signaling an improvement of business conditions, India’s factory output during the month of June grew at its fastest pace in the last four months. Moreover, the manufacturing sector also added additional workforce to accommodate higher levels of output, a survey said.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI), which measures the overall health of the manufacturing sector rose to 55 in June, a four-month high, from 54.8 recorded in May.
A PMI reading above 50 indicates growth in the manufacturing activity while a reading below 50 signals contraction. India’s manufacturing sector had managed to maintain a reading above 50 for more than three years.
However, the new export order index as well as the domestic new order index fell suggesting a subdued demand from both domestic and overseas markets.
The PMI survey also raised some concerns on the continuing inflationary pressures, which could disappoint those who were expecting a rate cut by the Reserve Bank of India (RBI).
The input prices continued to increase, extending the inflationary period to 39 successive months while the output prices increased as the manufac- turers attempted to pass the higher cost of inputs on to the consumers.
The input price index rose to 65.1 in June from 64.2 in May and the output price index rose to 59.5 from 58.7 during the period.
“The rate of inflation in June was sharp and the largest since August 2011.In light of these numbers, the RBI does not have a strong case for further rate cuts, which could add to lingering inflation risks,” said Mr Leif Eskesen, chief economist, India and ASEAN, HSBC.
“The demand remains weak, though we do not believe it plummeting as suggested by industrial output data, while inflationary pressures remain strong,” said Sonal Verma, economist, Nomura India. “With weak monsoons also likely to add to the food inflation pressures, we do not see room for rate cuts in the near term,” she added.