Millennium Post

March factory output growth rises to eight-month high

India’s manufacturing growth rose to an eight-month high in March driven by strong rise in business orders, leading firms to scale up output, while the build-up in inflationary pressures may result in RBI hitting the pause button, says a Nikkei survey.

The seasonally-adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI) -- a composite single-figure indicator of manufacturing performance -- was up from 51.1 in February to an eight-month high of 52.4.

The index registered above the crucial 50.0 threshold for a third straight month in March. A reading above 50 represents expansion while one below this level means contraction.

“PMI data suggests we should expect another quarter of robust economic growth in the last quarter of the 2015-16 financial year,” Pollyanna De Lima, Economist at Markit and author of the report, said.

On the price front, cost inflation accelerated and output charge inflation touched a 16-month high. Moreover, falls in commodity and oil prices were offset by weaker rupee making imported raw materials costlier.

“This build-up in inflationary pressures may lead Reserve Bank to hold off from cutting rates, especially as solid growth was seen,” Lima added. The survey noted that along with improved domestic demand, producers also recorded an increase in new export business.

“On the export front, it was encouraging to see a sustained increase in new export orders, often attributed to the depreciation of the rupee,” Lima said.

Negative industrial outlook have strengthened a case for RBI cutting interest rate in its first bi-monthly monetary policy for 2016-17 tomorrow. RBI Governor Raghuram Rajan on February 2, left the key interest rate unchanged citing inflation risks and growth concerns. 

Meanwhile, Rajan on March 12 said that government sticking to fiscal consolidation roadmap of reducing deficit to 3.5 per cent of the GDP in 2016-17 was comforting. On how that would feed into monetary policy, he had said “wait and see”.
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