In some encouraging news from India's factories, May data pointed to a slight improvement in operating condition as the production volumes at Indian manufacturers continued to rise, leading to further job creation across the sector. The HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, which is based on data from monthly survey of purchasing executives in over 500 manufacturing companies, stood higher at 51.4 in May from 51.3 in April, little higher reading above 50 water shed mark that segregates growth from contraction. The activity in the sector expanded for the seventh consecutive month in May, though the rate of expansion was unchanged from the modest pace registered in April.
Growth in both total new orders and new export business led to this small uptick, with the new orders sub-index, including domestic demand as well as orders from abroad, rising to 53.2 in May, a three-month high, from 52.5. Notably, the pace of incoming work marking a seven-month sequence of expansion, accelerated to the quickest since February. Meanwhile, new export business rose at a solid rate that was quicker than in April. Encouragingly, staffing levels were raised in May, amid evidence of increased production requirements.
On the inflation front, while the input costs continued to rise in May, albeit at the weakest rate in one year, output charges increased further. The rate of charge inflation was, however, marginal and weaker than the series average.
Manufacturing output in India, which accounts for about 16% of the overall economy, has been languishing of late. A prolonged slowdown in output from mines, utilities and factories has severely hurt growth. However, the recent momentum in the manufacturing sector albeit marginal, which points to improving operating condition, is on account of higher domestic and export order flows. But the latest PMI data show that India, now growing below 5 percent on an annual basis, is still grappling with an inflation challenge with output pricing still rising, making it difficult for Reserve Bank of India (RBI) to take down its inflation guard just yet.
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