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India’s manufacturing sector inched up in October, driven by new orders, but persistent power shortages weighed on production, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers’ Index (PMI) — a measure of factory production — stood at 52.9 in October slightly up from September, when it was 52.8.
The index has remained above the 50-mark, below which it indicates contraction, for more than three years now.
The October reading of HSBC PMI points to a further improvement in the health of the manufacturing sector, which witnessed the weakest growth rate in nine months in August.
However, going forward, the recovery in manufacturing growth is likely to be “slow”, HSBC said, adding that backlog of work in the Indian manufacturing sector was accumulated at a sharp rate during October mainly due to persistent power shortages.
“Economic activity in the manufacturing sector picked up slightly thanks to firm new orders. However, insufficient power dampened output growth and led to an increase in outstanding work,” HSBC Chief Economist for India and ASEAN Leif Eskesen said.
On inflation, HSBC said it eased notably with both output and input prices rising at a slower pace in October but it is still likely to stay “elevated for a while“.
Input price inflation in the Indian goods—producing sector persisted in October and part of the burden of input cost inflation was passed on to clients as output prices were increased again. However, the rate of inflation was the slowest since November 2010, HSBC said.
Inflation as measured by all indices has remained elevated and Wholesale Price Index-based inflation has remained above the Reserve Bank’s comfort zone of 5-5.5 per cent for past 34 months now.
In the mid-year monetary policy review on October 30, the RBI left the key interest rate unchanged but reduced cash reserve ratio by 0.25 per cent to infuse additional liquidity of up to Rs 17,500 crore into the system.
The RBI kept the repo rate and reverse repo rate unchanged at 8 per cent and 7 per cent respectively.
Meanwhile, staffing levels at the manufacturing firms increased, marking an eight-month sequence of job creation.
The payroll numbers were raised largely to support new orders growth, the HSBC survey said.
This is the second successive monthly expansion in new export orders and new orders increased for the forty-third consecutive month.
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