India's manufacturing sector continued to grow in June as factories increased production and hired more staff to meet higher demand, results of a survey showed Monday.
However, the survey also revealed cause for concern over the coming months as new order growth slowed slightly, due mainly to weaker export order growth. Official figures released today vindicated the worry showing a slump in exports in May.
Inflationary pressures continue to plague the manufacturing sector, which has been expanding for more than three years, leaving less room for the central bank to mull interest rate cuts.
The seasonally adjusted HSBC Purchasing Managers' Index or PMI, which reflects the overall health of the manufacturing sector, rose to 55.0 in June from 54.8 in May, Markit Economics said. A reading above 50 suggests expansion in the sector.
"Activity in the manufacturing sector kept up the pace in June with output, and employment expanding at a faster pace," HSBC Chief Economist for India & ASEAN Leif Eskesen said. "The latter helped slow the pace of growth in backlogs of work."
The export orders-driven deceleration in new order growth and rising stock levels suggest a slight moderation in output growth going ahead, Eskesen said. Demand from one of the major export destination Europe is likely to be hurt due to the debt crisis, economists say.
The Ministry of Commerce and Industry reported today that exports fell 4.16 percent year-on-year in May. Imports declined 7.36 percent. The trade deficit narrowed to $16.3 billion from $18.5 billion last year.
Manufacturers' cited more expensive labor as a reason for increased costs, which they tried to pass on to their clients, keeping inflation at historical highs. Input prices rose for the 39th month in a row, logging its biggest monthly increase since August 2011.
"In light of these numbers, the RBI does not have a strong case for further rate cuts, which could add to lingering inflation risks," Eskesen said.
With growth at a nine-year low, inflation persistently high and the rupee weakening steadily, the Reserve Bank of India left the interest rates unchanged on June 18.
Rating agency Standard & Poor's has warned that India could be the first nation among the BRIC to lose its investment grade rating.
by RTT Staff Writer
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