A private industry survey released on Monday showed that India’s manufacturing sector grew at its fastest rate in three months in March. This was due to more production and new orders.
Overall, the study backs up the idea that Asia’s third-largest economy is better prepared than many others to deal with the effects of a global recession.The Indian economy is expected to increase 6.9% this fiscal year and 6.0% next year.
S&P Global’s Manufacturing Purchasing Managers’ Index rose to 56.4 in March from 55.3 in February, maintaining above the 50-point level that distinguishes expansion from contraction for the 21st consecutive month. It was higher than the 55.0 predicted by Reuters survey.
“Underlying demand for Indian goods remained strong in March… “As a result, production continued to expand at a robust clip, and firms increased their stock-building efforts,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence, in a statement.
The new orders sub-index, which measures overall demand, increased last month, while overseas demand climbed faster than in February. Output increased at the fastest rate since December.
However, that recovery did not translate into higher hiring as job market conditions deteriorated, and the economy fell back into contraction for the first time in 13 months, despite the slow pace of job losses.
Because of worries about competition and general inflation, optimism about future production has fallen to an eight-month low.
While input cost inflation fell to its lowest level in two and a half years, companies did pass on some of the pressures of higher labour and raw material prices to consumers. The production prices subindex increased from 51.8 to 52.0.
This is expected to keep retail inflation high in the coming months. According to a Reuters poll, inflation is anticipated to average 6.7% this fiscal year and then decrease to 5.2% the next year, staying over the Reserve Bank of India’s medium-term objective of 4.0%.
As expected by a Reuters poll, the Fed may not stop raising interest rates after the last one this month because of high inflation.
“Although manufacturers were upbeat towards future new orders, they somewhat doubted that inflation would continue to recede. Such worries restricted optimism towards output prospects,” De Lima said.