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In January, India’s manufacturing sector expanded the most this financial year, while inflation, particularly on the raw material front, rose, according to the widely-tracked HSBC Purchasing Managers’ Index (PMI).
The PMI for January rose to 51.4 points from 50.7 in December. While a reading of above 50 shows expansion, one below 50 indicates contraction.
The government is hoping for a recovery in growth in the quarter ending March. For the April-September 2013 period, growth stood at 4.6 per cent against 5.3 per cent in the year-ago period. In 2012-13, the economy expanded a decade-low of 4.5 per cent.
According to the Index of Industrial Production (IIP), the manufacturing sector had contracted in October and November 2013.
While the PMI is a monthly calculation, the IIP is annual. Also, while PMI is a survey of about 500 companies and takes into account the confidence of India Inc, IIP is purely production data. This financial year, both IIP and PMI have remained low.
Markit Economics, the financial information firm that compiles PMI data, said, “The latest reading (for January) was the highest since March 2013, but pointed to a marginal pace of expansion, which was well below the series average (55.1 points).”
In January, the number of new orders rose the most in 10 months, with survey participants reporting stronger demand from both domestic and foreign clients, said Markit Economics.
As new business from abroad increased the most since June 2013, it is expected in January, exports might also have seen good growth, after growth in exports fell to single digits in November and December. Indian manufacturers raised their production levels for the third consecutive month; the growth was the highest since February 2013.
Sector data indicated consumer goods continued to outperform the capital goods and intermediate products segments.
While operating conditions deteriorated for producers of capital goods, growth in production and new orders in the consumer goods space surpassed that in the intermediate goods segment.
In the IIP data, it has been seen the consumer non-durables space has been faring well, while the durables sector has been contracting for months.
Markit Economics said in January, employment in the manufacturing segment rose for the fourth consecutive month, with all the three broad segments recording job creation.
In January, companies in the manufacturing sector saw pressure on operating capacity, as backlog increased. Average input costs rose, with manufacturers reporting higher prices for a range of raw materials, including metals, chemicals and energy.
Leif Eskesen, chief economist for India & the Association of Southeast Asian Nations, HSBC, said, “Inflation pressures firmed, suggesting the RBI (Reserve bank of India) has to keep up its inflation guards.”
In its monetary policy review on January 28, RBI had surprised markets by raising the repo rate 25 basis points, owing to concern on retail inflation.
