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Factory output rises marginally in January

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BS Reporter New Delhi
Last Updated : Jan 25 2013 | 2:53 AM IST

A day after official data showed a marked improvement in core sector activities in December, a leading private sector survey found manufacturing had grown moderately in January. The HSBC Markit Purchasing Managers’ Index (PMI), based on a survey of 500 manufacturing companies, rose marginally to 56.8 points in January from 56.7 in December.

A reading of above 50 in the index indicates expansion.

This is despite many fearing there could be an adverse impact of the tight monetary policy of the Reserve bank of India (RBI) and rising input costs on manufacturing. In fact, input costs also continued to go up in January, according to PMI.

January saw the second-sharpest rise in input cost inflation in the history of the series. Output prices also increased at a historically steep pace, though at a pace slower than input costs.

The latest reading of expansion of the manufacturing sector in India is stronger than the average rate recorded in the series and has been primarily led by new orders that pushed output, backed by demand from domestic clients. The expansion in production was stronger than the previous month, but weaker than November’s nine-month high.

“The manufacturing sector has started the year in style , with the growth momentum picking up a tad, led by higher output, as order books continue to thicken, reflecting, in particular, strong demand from domestic clients,” said Leif Eskesen, chief economist for India and Asean at HSBC.

However, even as there was a rapid growth in domestic demand, growth in new export business slowed to the weakest pace in three months. But the growth level continued to be above the long-time average. Moreover, despite a substantial growth in new business and output, employment in the Indian manufacturing sector was down slightly during the month.

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Despite steep growth in output, backlogs of work increased in January. Panelists accorded this to higher new order volumes, compounded by shortages of raw materials and manpower. However, the increase in backlogs was the weakest in the last three months.

“The strong demand is piling up backlog of works, albeit at a slightly slower pace and the tight capacity pushed input and output prices at an accelerated price,” Eskesen added.

Panelists commented that demand for workers was more than the availability, leading to difficulties in filling vacancies. However, on the brighter side, most panelists indicated that employment in their respective units remained unchanged from the previous month.

Official data yesterday also showed recovery in six core industries in December. They grew by 6.6 per cent in December, compared to just 3 per cent in the previous month, indicating that industry would do better in the last month of 2010, compared to just 2.7 per cent growth in November.

PMI and Indian official data on manufacturing are sometimes not in line with each other.According to offiical data, manufacturing growth plunged to 2.3 per cent in November, compared to 11.9 per cent in the previous month, whereas PMI showed that the manufacturing index rose to a nine-month high to 58.4 points in the month, from 57.2 points in October.

Even as the growth rate in the manufacturing sector in India and China showed signs of moderation in pace, the PMI data signalled the onset of recovery in the euro zone. Employment in the UK also rose at an all-time high rate, according to the PMI series.

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First Published: Feb 02 2011 | 12:51 AM IST

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