Manufacturing sector grows at fastest clip in 13 months

Manufacturing sector grew at the fastest pace in 13 months in August as new orders surged while input and output costs were subdued, giving room for RBI to cut interest rates, a monthly survey showed today.

Showing "sold improvement", Nikkei India manufacturing PMI went up to 52.6 last month, from 51.8 in July. A reading above 50 indicates expansion.

A sharp upturn in new business inflows, which expanded at the fastest pace since December 2014, among other factors, pushed the Purchasing Managers' Index (PMI) higher in August.

Consumer goods producers led the increase although solid growth was also seen in the intermediate and capital goods categories.

"Manufacturing PMI data show that the positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new works, buying levels and production accelerating further," Economist at IHS Markit and the report's author, Pollyanna De Lima, said today.

Moreover, the sector's growth dynamics for the near term are encouraging as companies will likely continue their efforts to replenish stocks, Lima said, adding that IHS Markit forecast a "robust 7.5 per cent increase in real GDP during 2016/17".

On the price front, the survey data highlighted softer increases in input costs and output charges and, in both cases, inflation rates were below their respective trends, Lima said.

"In light of these numbers, RBI has scope to loosen the monetary policy in the upcoming meeting to further support economic growth in India," Lima noted.

Last month, the Reserve Bank of India (RBI) left key rates unchanged citing upside risks to its inflation target for March 2017, but underlined that the central bank continues to be accommodative.

The next monetary policy meet is scheduled for October 4 which will be the first under new RBI Governor Urjit Patel. It is likely to be the first where the decision would be taken by the Monetary Policy Committee (MPC), which is in the works.

According to the report, manufacturers indicated that both domestic and international external markets had been sources of incoming new works and last month also saw new export orders expand at the quickest pace in one year.

Further, it said companies continued to raise output last month, with growth picking up to the strongest in one year.

"Consumer goods were once again the strongest-performing sector on this front. Greater output requirements led some manufacturers to hire additional workers in August, but the overall rate of job creation remained marginal as the vast majority of firms left workforce numbers unchanged," it added.