Indicating an improvement in industrial activity, the Nikkei India Manufacturing Purchasing Managers’ Index (PMI) jumped to a three-month high of 51.7 in June, against 50.7 in May.
“The main contributing factors to the upward movement in the PMI were stronger rates of growth in new orders and output, both of which reached three-month highs in June,” said a Nikkei statement on Friday. A reading above 50 indicates expansion while one below means contraction.
“Indian factories registered a welcome upturn in growth of both production and new orders mid-way through 2016, but producers clearly remain stuck in a low gear,” said Pollyanna De Lima, Economist at Markit and author of the report.
However, Lima warned that the rate of expansion remained weak: the PMI average for the April-June quarter was lower than the figure for the prior quarter, signalling a softer contribution from manufacturing to the overall GDP.
Among sectors, consumer goods performed the best in June.
Incoming new work orders rose, although new export orders increased in June. The rate of inflation eased to the slowest since March, and was moderate overall.
“This lack of inflationary pressure provides the Reserve Bank of India with further leeway to boost economic growth through cutting its benchmark rate,” Lima said.
The RBI’s next policy review is on August 9. In the last review, RBI Governor Raghuram Rajan had cited inflationary pressures for maintaining the status quo on rates.