Activities in the manufacturing sector have picked up in January. This is reflected in HSBC’s India Manufacturing Purchasing Manager Index (PMI) which rose to 51.4 in January against 50.7 in December.

This survey is conducted every month among managers of 500 companies. Results of the survey indicated that the latest reading was the highest since March 2013. However, the expansion is marginal and still well below the average reading of 55.1.

Commenting on the survey, Leif Eskesen, Chief Economist for India & ASEAN at HSBC said, "Manufacturing activity moved into higher gear, led by faster growth in new orders. However, inflation pressures also firmed, suggesting that the RBI has to keep up its inflation guards.”

Survey participants have reported stronger demand from both domestic and overseas clients. Concurrently, new business from abroad grew at a solid pace that was the fastest since June last year. Subsequently, Indian manufacturers raised their production levels for the third successive month. It also suggests that consumer and intermediate goods were behind the recent expansion. Capital goods production, on the other hand, softened. Employment rose for the fourth month running in January, with all three broad areas of the manufacturing economy posting job creation.

Average input costs rose in January, with manufacturers reporting higher prices for a range of raw materials, including metals, chemicals and energy. The rate of cost inflation remained robust. Consequently, companies raised their tariffs again. Although the strongest in three months, the latest rise in output charges was moderate and much weaker than seen for input costs.

Although the pick-up in manufacturing activity was welcome news following months with softening activity readings, this does not mean that a sustained improvement in growth is just around the corner. Progress on structural reform implementation, including actual execution of investment projects, is a precondition for a sustained lift to growth. However, notable progress on this front still has to materialise. While it is true that the Cabinet Committee on Investment has cleared a number of projects on paper, most of these have yet to break ground, HSBC said.

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