Indian Manufacturing Gains Gurther Impetus In Jan; PMI At Eight Month High Levels (01-Feb-2012)
Even as most developed nations continued to struggle, industrial activity in India resiliently expanded at a brisk pace in the month of January with manufacturing sector business conditions improving at fastest rate in eight months. The manufacturing sector continued to gain momentum as demand from both domestic and foreign clients increased, underscoring the fact that sentiments have improved in recent months. With the sharp increase in both new orders and output, purchasing activity too saw substantial rise during the month.
According to the HSBC purchasing managers' index (PMI), the manufacturing sector expanded to 57.5 in January, 2012 as against 54.2 in the previous month of 2011. A figure above 50 signals increase in production while, a number below 50 indicates contraction. The factory sector growth in the month was faster than the long-run series average. The PMI reading, which measures the overall health of manufacturing sector, suggested that factory activity saw strongest improvement in business conditions since May 2011.
After expanding at a swift pace in the last month of 2011, the momentum in industrial activity has accelerated further thanks to general improvement in demand and market conditions which resulted in rise in new order volumes. The factory output sub-index soared to 62.9 in January as against 55.8 in the previous month while both the output and the new orders indexes climbed to their highest levels since May last year. Though, growth of new export business also quickened but difficult economic conditions and increased competition in some markets, capped gains in new export orders.
Besides, manufacturing sector employment remained largely unchanged around December levels when it rose after four straight months of showing job losses. However, much to the dismay of the sector, the rate of input cost inflation increased substantially during January driven up by higher raw material costs. The rate of increase was faster than in December and it remained stubbornly above the long-run series average.
Meanwhile, a month after keeping the key policy rates unchanged, the first time since March 2010, the Reserve Bank of India (RBI), has once again left the repo and reverse repo rates untouched at 8.5% and 7.5% respectively. However, the Indian central bank has pulled out a rabbit from the hat as it decided to cut the cash reserve ratio to 5.5% from 6% which underscores a cut of 50 basis points. The RBI governor though, was of the belief that it is premature to start reducing policy rates in favor of economic growth just yet as inflation continues to hover at uncomfortable levels.
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