Manufacturing sector performance is estimated to have risen to a 13-month high in August led by a strong pick up in both domestic and external demand.

The Nikkei India Manufacturing Purchasing Managers’ Index rose to 52.6 in August from 51.8 in July. A reading above 50 on the index indicates expansion while one below 50 denotes contraction.

The data come a day after official statistics revealed that though growth in gross domestic product in the first quarter of the fiscal slowed to 7.1 per cent, the manufacturing sector performed at a healthy 9.1 per cent.

“Contributing to this was a sharp upturn in new business inflows, which expanded at the fastest pace since December 2014,” said a statement on Thursday, adding that consumer goods producers led the increase, although solid growth was also seen in the intermediate and capital goods categories.

The government expects a further boost to factory output in the coming months as private demand increases due to the award of the Seventh Pay Commission.

However, it is unlikely that the Reserve Bank of India will give a boost to private investment through reduction in interest rates in its next policy review.

However, Pollyanna De Lima, Economist at IHS Markit and author of the report, said, “The survey data highlighted softer increases in input costs and output charges and, in both cases, inflation rates were below their respective trends. In light of these numbers, the RBI has scope to loosen monetary policy in the upcoming meeting to further support economic growth in India.”

GDP forecast IHS Markit has forecast a robust 7.5 per cent increase in real GDP during the current fiscal.

Meanwhile, the PMI survey revealed that greater output requirements also led some manufacturers to hire additional workers in August, but the overall rate of job creation remained marginal and the workforce numbers were largely unchanged.

Higher prices for petrol and other raw materials led to an increase in the overall cost burdens faced by manufacturers. But it did not translate into a significant rise in prices and the rate of inflation was only slight and the slowest since February.

But, backlog of work rose faster and the capital goods sector posted the strongest increase in unfinished business.

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