The manufacturing sector has registered strongest growth in June since February, a survey by HSBC revealed on Tuesday. Results of the survey is known as HSBC Purchasing Manager Index (PMI).

The index rose to 51.5 in June from 51.4. Though the increase in marginal the important thing is that the manufacturing output has increased for the eighth successive month. At the same time, growth of export orders has hit a three-month high. However, expansion of incoming new orders has been moderate.

“Greater domestic and foreign demand led companies to increase production levels further. Buying activity expanded at a faster rate, while employment continued to rise. Input cost and output price inflation accelerated over the month, although in both cases the rates of increase were below their respective long-run averages,“ the survey said.

Improving

Commenting on the survey, Frederic Neumann, Co-Head of Asian Economic Research at HSBC, said that things are gradually improving in India's manufacturing sector. Output picked up in June, supported by growing order flows, especially from overseas. “The muted pace will suit the RBI: since input and output prices are rising as well, faster growth would only stoke inflation and require tightening," he said.

The survey said that the future looks bright with reforms expected to fuel the recovery. However, it advised that patience is needed as the economy is supply constrained and not demand deficient. It cautioned that a stimulus to growth from the new government could worsen macro-economic imbalances, that is, inflation and the trade deficit. “A gradual recovery is what is needed, providing more time to address supply side bottlenecks in the economy,” it said.

Growth in buying activity

Amid evidence of new order growth and re-stocking efforts, Indian manufacturers raised their quantity of purchases in June. Buying activity increased for the eighth month in succession and at the fastest pace since March 2013.

Concurrently, pre-production stocks rose in June. That said, the rate of accumulation was only slight and weaker than the long-run series trend. Holdings of finished goods also expanded at a slight pace, albeit one that was faster than in May. Higher post-production inventories were linked by respondents to increased production levels.

For the ninth consecutive month, manufacturing employment rose in June. However, the rate of job creation was marginal and slower than in the previous month. Those panellists reporting higher payroll numbers attributed this to the signing of new contracts. The overall increase in staffing levels was centred on the consumer goods category.

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