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After three months of decline, India’s manufacturing sector grew slightly in April as new orders poured in, but the rate of expansion was limited by power shortages and was the weakest so far this year, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) — a measure of factory production — inched up to 54.9 in April from 54.7 in March.
A reading above 50 shows that the sector is growing, while a reading below 50 means the segment is contracting.
India’s manufacturing sector has witnessed an uptrend after falling for three months.
“Activity in the manufacturing sector expanded at a slightly faster pace in April. While output growth moderated, partly on the back of power outages, new orders continued to pour in, including for exports,” said Mr Leif Eskesen, HSBC Chief Economist for India and ASEAN.
The report further noted that although manufacturing output increased, the rate of expansion slowed fractionally, and was the weakest so far in 2012.
Power cuts
The survey respondents indicated that higher new orders had led to the rise in output, but power cuts had prevented firms from increasing the production at a faster rate.
Capacity remained tight for the manufacturing sector as backlogs of work increased and inflationary pressures strengthened owing to rise in both output and input prices, HSBC said.
“This suggests that upside risks to inflation remain and that the RBI’s rate cut could turn out to have been premature and too aggressive,” Mr Eskesen added.
Monetary policy
In its annual monetary policy statement for 2012-13, the central bank, after a gap of three years, had cut interest rates by 0.5 per cent making credit cheaper.
The Reserve Bank of India had hiked policy rates 13 times between March 2010 and October 2011 to control persistently high inflation.
Meanwhile, there was a modest increase in employment in the manufacturing sector in April.
“The latest increase in staffing levels was only modest.
Where job creation was recorded, this was mainly linked to higher workloads,” HSBC said.
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