Signaling a solid and stronger improvement in business conditions across the country’s goods-producing sector, the Indian manufacturing economy strengthened further in February, with faster increases in output and new orders bolstering the PMI to reach a one-year peak. The HSBC Purchasing Managers’ Index (PMI), a headline index designed to measure the overall health of the manufacturing sector, rose to 52.5 in the month of February as against 51.4 in January.
Notably, the pace of output expansion was solid and the quickest in one year on account of higher demand from both domestic and export clients. Indeed new work from abroad rose in the latest month, with the growth rate climbing to the highest since June last year, while new orders increased for the fourth month running and at the most pronounced rate since February 2013.
Sectorally, Consumer goods was again the best performing subsector of the manufacturing economy in February, leading the rises in both output and new orders. Further, February data indicated that manufacturing employment increased, stretching the current period of job creation to five months. On the inflation front, while input cost inflation quickened to its highest in four months during February, the rate of charge inflation was slight and the weakest in five months.
Although, the manufacturing activity has picked up in February on the back of improvement in external demand and the reduction in macroeconomic uncertainty since last summer, the recovery in activity is still likely to prove protracted given the lingering structural constraints. Moreover, underlying inflation pressures, which remains potent and was evident enough from the jump in the input price component of the PMI survey, would keep RBI’s policy tone hawkish and likely propel it to raise rates a bit further this year.
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