Manufacturing sector shows resilience; PMI surges to six month high levels in Dec

03 Jan 2012 Evaluate

India’s manufacturing activity showed some resilience in the month of December as it accelerated at a swift pace on the back of strong new work intakes and output growth. The expansion in manufacturing came in the face of continued contraction in most Asian nations and across the European region. However, upbeat domestic demand, new orders and increase in exports together helped in underpinning Indian PMI index to remain in the expansionary territory for 33 months in a row.

According to the HSBC purchasing managers’ index (PMI), the manufacturing sector expanded to 54.2 in December, as against 51 in the previous month of 2011. A figure above 50 signals increase in production while, a number below 50 indicates contraction. Though the factory sector growth in the month remained lower than the long-run series average, however, the PMI reading, which measures the overall health of manufacturing sector, suggested that factory activity saw strongest improvement in business conditions in last six months.

After showing signs of cooling and coming extremely close to contracting in the last few months, the manufacturing sector has bounced back on improved domestic and foreign demand, indicating that momentum in the sector is not as bad as other official manufacturing indicators pointed out recently. The month of December saw sharp rise in new order volumes while the rate of growth of manufacturing output accelerated to highest levels in four months. Besides, manufacturing sector employment rose in the month under review after four straight months of showing job losses. But, the rate of input cost inflation despite showing signs of easing in November, remained stubbornly above the long-run series average.

Meanwhile, the RBI after relentlessly hiking key interest rates thirteen times since March 2010 in its bid to rein in the inflationary pressure on the economy, showed some mercy and paused the liquidity tightening cycle in its last policy review meet in December. The RBI governor has also hinted at moving towards monetary easing as its concerns shifted from containing inflation to helping the cooling economy recuperate.

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