India’s manufacturing sector performance is estimated at an eight-month high in March because of improved demand from domestic and export markets. However, rising prices could make the central bank hold key rates, according to Nikkei India Manufacturing Purchasing Managers’ Index (PMI).
The seasonally adjusted PMI remained firmly above the threshold of 50 for a third consecutive month and jumped up to 52.4 in March from 51.1 in February. A reading above 50 on the PMI denotes expansion while that below 50 indicates contraction in activities.
“PMI data suggest we should expect another quarter of robust economic growth in the last quarter of the 2015-16… Despite gathering momentum, growth of production and new orders still remained below trend rates however,” said Pollyanna De Lima, Economist at Markit and author of the report, while warning that inflationary pressures are on the upside and could mean a pause on interest rates.
The Manufacturing PMI is the last set of data before the Reserve Bank of India announces the monetary policy for 2016-17 on Tuesday. Last week, official data revealed that the eight core sector industries grew at a 15-month high of 5.7 per cent in February.
Noting that there has been “solid growth”, Lima said, “March’s survey suggests that inflationary pressures in manufacturing are on the upside, with cost burdens rising at the quickest pace in three months and output charge inflation reaching a 16-month high…This build-up in inflationary pressures may lead the RBI to hold off from cutting rates.”
The report noted that cost inflation accelerated and the rates of cost and charge inflation were at three- and 16-month highs, respectively.
However, production growth accelerated to the fastest since August 2015 and new business inflows increased and was the most pronounced since July last year.
It further said that while these positive developments encouraged companies to buy more inputs, workforce numbers were largely unchanged with less than 2 per cent of survey participants reporting job creation.