Manufacturing rises to a year high

New Delhi: Manufacturing activity continued to remain buoyant in February on a jump in domestic and export orders suggesting that the worst may be over for India Inc.

The HSBC Purchasing Managers’ Index (PMI) for the manufacturing sector moved up to a one-year high of 52.5 in February, bringing some good news for the UPA Government at the fag end of its tenure. The index, which is based on monthly data compiled from replies to questionnaires to purchasing executives in around 500 manufacturing companies, clocked 52 in March 2013. In January 2014, the PMI was 51.4. A number under 50 suggests contraction.

Consumer goods segment was again the best performing sub-sector of the manufacturing economy, leading the rise in both output and new orders. Operating conditions also improved for intermediate goods producers, but remained unchanged in the capital goods category. New export business rose at a quicker clip, the survey said.

February data indicated that manufacturing employment increased, stretching the current period of job creation to five months. That said, payroll numbers rose at a fractional pace that was the weakest in that sequence.

The PMI number came as a surprise as the Government’s advance estimates for 2013-14 suggested a decline of 0.2 per cent in the manufacturing sector for the year as a whole. Even the data for April-December showed a decline of 0.6 per cent in the manufacturing sector. Government data for January will be out in 10 days while that for February will come in April.

Commenting on the latest trend, Leif Eskesen, Chief Economist for India & ASEAN at HSBC, said manufacturing activity picked up as new order flows have firmed, with the improvement in external demand and the reduction in macroeconomic uncertainty since last summer. This, in turn, has provided a lift to output growth.

“However, the recovery in activity is still likely to prove protracted given the lingering structural constraints. Moreover, underlying inflation pressures remain potent, which was evident from the jump in the input price component of the PMI survey. This will keep the RBI hawkish and may compel it to raise rates a bit further this year,” he cautioned.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.