India’s manufacturing sector growth eased slightly in February as factory output and new business orders rose at a slower pace.

The Nikkei India Manufacturing Purchasing Managers Index (PMI) fell from 52.4 in January to 52.1 in February, indicating a modest improvement in operating conditions.

This is for the seventh consecutive month that the index remained above the 50-point-mark that separates expansion from contraction.

The expansion was primarily driven by a significant rise in manufacturing production, while there were reports of improved underlying demand, with domestic and external sources driving new business gains.

“It was promising to see that India’s manufacturing sector remained in growth territory, as the impact of July’s Goods and Services Tax continues to dissipate,” said Aashna Dodhia, Economist at IHS Markit and author of the report.

In response to greater production requirements, firms raised their staffing levels during February. Although modest, the pace of job-creation was slightly faster than January.

On the prices front, the survey said that cost inflation accelerated to the sharpest since February 2017, adding to expectations that inflationary risks will continue over the coming months.

CPI estimates

IHS Markit upgraded its CPI forecast to 5.2 per cent for financial year 2017-2018 amid a stronger oil price forecast and growing fiscal risks.

“Although companies were able to raise their average selling prices at the fastest pace in a year, inflation remained modest highlighting some customer sensitivity to price changes,” Dodhia said.

The survey further noted that Indian manufacturers remained optimistic towards the 12-month outlook for production during February.

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