Business activity in Indian manufacturing sector, improving for the ninth consecutive month, expanded at its quickest pace in 17 months, i.e. since February 2013, for the month of July on account of flood of new orders from both domestic and external sources. The HSBC Manufacturing Purchasing Managers’ Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, rose to 53.0 in the month of July from 51.5 in June. The reading, which remained above the crucial 50 mark for the ninth consecutive month that separates growth from contraction, signaled a solid improvement in business conditions.
A surge in new orders in July helped drive the solid improvement in business conditions. The new orders sub-index soared to 55.9, it’s highest since February last year, which was the biggest monthly jump in the measure of eight months. Although, all the three monitored categories witnessed a rise in output and order flows, intermediate goods sub-sector indicated marked rise of new work intakes.
Encouraged over the growing new work, Indian manufacturers also raised their quantity of purchases in the reported month. Buying activity increased at the fastest pace since February 2013 leading to high pre-production inventories. However, the rate of accumulation was moderate overall. Likewise, stocks of finished goods expanded fractionally in July. In both cases, inventory accumulation was recorded in the consumer and intermediate goods sectors, while stocks were depleted in the capital goods category.
However in a sign of caution, the survey suggested steep rise in input prices on account of higher price paid for metals, plastics, textiles, packaging, food and energy, with the rate of cost inflation being at the quickest since February, thereby indicating inflation may remain elevated in coming months as companies seek to pass on the higher costs although that is not something they did to a large extent last month.
The survey further points that though the pace of recovery would be encouraging, but steep rise in input price would be cause of worry for Reserve Bank of India (RBI), which will review its third bi-monthly policy on August 5, 2014. its last policy review in June, the RBI had kept the repo rate—at which it lends to the banks—unchanged at 8%.
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