The New Year has given a new hope for the manufacturing sector, as the HSBC Purchasing Managers' Index (PMI) zoomed to a two-year high of 54.5 in December against 53.3 in November.
The rise to due to combination of good orders both from home and abroad.
The PMI is a measure of factory production and based on the data compiled from monthly replies to questionnaires sent to purchasing executives in around 500 manufacturing companies. Index above 50 shows expansion, while below 50 indicates a decline.
“A steep rise in new orders from the consumer sector more than offset a slowdown in new order growth from investment goods. In our view, a rise in the latter is critical for a meaningful pick-up in economic growth. In line with falling commodity prices over the last few months, input price inflation was modest, and this trend was also mirrored in output prices. With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015," Pranjul Bhandari, Chief India Economist at HSBC, said.
Industrial production
After really posting weak industrial data in October i.e. - 4.2 per cent, the manufacturing activity ended on a positive note for Indian producers in 2014.
The survey mentioned that the weak October IIP reading was an exaggeration given the large number of holidays in October, as well as the large weight given to one firm which closed shop. Since then, the PMI manufacturing index has shown a sustained increase over November and December, it said.
Survey proposals
The survey suggested that In order to raise investments, there is need to free up resources on the ground by addressing issues around land acquisition, availability of raw material and government clearances, which seem to have stalled several investment projects.
"In a recent note, we outline some principles which the government could follow for fast-tracking legislative reforms, while it continues to press ahead with executive action,'' it said.
Inflation
On the inflation front, the rise in input prices eased to its lowest value in five-and-a-half years. This was also reflected in weaker growth in output prices.
With inflation trending down, “we believe the RBI will find the space to cut the repo rate by 50 bps in 2015. However, the central bank will closely watch any reversal in the declining trend of commodity prices or lack of fiscal consolidation going forward,” the survey said.