Manufacturing production in February continued on the recovery path after demonetisation, as high export demand led to more new orders, a monthly survey has revealed.

The Nikkei India Manufacturing Purchasing Managers’ Index (PMI) rose to 50.7 in February from 50.4 in January. “It was above the neutral 50 value for the second month running and indicated that the health of the sector improved to a greater extent than in January,” Nikkei said in a statement on Wednesday. A reading above 50 on the index indicates growth while that below 50 shows contraction.

Business activity grew in two of the three monitored market groups, with the capital goods sector being the only exception.

The data comes a day after the Central Statistics Office released the GDP growth estimates for the third quarter of the fiscal. It pegged growth in gross value addition in the manufacturing sector at a robust 8.3 per cent for Q3 and 7.7 per cent for FY17.

However, the latest Nikkei reading was much weaker than the long-run series average (54.2), largely reflecting below-trend rates of growth for output and new business, it added.

“With growth rates well below par, the sector still has many areas to develop before it can fire on all cylinders. Businesses don’t yet seem convinced as to the sustainability of the rebound as highlighted by cuts to payroll numbers and destocking initiatives,” said Pollyanna De Lima, economist at IHS Markit and author of the report.

But, worryingly, input price inflation rose in February at its fastest pace in two-and-a-half years. Manufacturers reported higher purchasing costs for metals, chemicals, energy and plastics.

Similarly, output price inflation also accelerated in February and was the strongest since October 2013, as companies tried to protect margins in the face of rising cost burdens.

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