India manufacturing output hits 3-month high: survey

NEW DELHI: Indian manufacturing orders hit a three-month high in May, suggesting stronger output in the coming months, as overall factory output growth picked up pace slightly, a business survey showed Monday.

The HSBC Purchasing Managers' Index (PMI), based on a survey of 500 manufacturers, is keenly watched as a portent of industrial expansion in Asia's third-largest economy.

The survey comes as business is looking to new right-wing Prime Minister Narendra Modi to engineer a rebound in a country beset by sluggish economic growth.

"The momentum in the manufacturing sector improved at the margin, thanks to higher domestic and export order flows," said Frederic Neumann, HSBC co-head of Asian economics.

The HSBC PMI showed new orders, an important forward-looking indicator, jumped a full point to 53.2 from 52.5 in April while overall manufacturing output edged up to 51.4 in May from 51.3 in April.

A reading over 50 points to expansion.

The figures followed gross domestic product data late Friday which showed India's economy still stuck in low gear, growing by 4.7% in the 12 months to March this year, marking the second straight year of sub-5% expansion.

While India's growth outlook has improved considerably since Modi, seen as pro-business, took office last week, the latest data was a reminder of the steep challenges facing the new government, economists said.

"The election was clearly a game changer. Still, it's important to remain realistic about how quickly things will improve," Neumann said, adding even if "the low point may be past us, the recovery will likely prove only gradual".

India's PMI figures generated less optimism than HSBC's China PMI released on Sunday that showed factory activity in the world's second-largest economy expanding at the fastest rate in five months in May, stoking hopes the Chinese economy was regaining traction.

The Indian PMI figures came a day ahead of the first monetary policy-setting meeting by the central bank with Modi in power.

With consumer inflation still stubbornly high, the hawkish central bank is expected to leave benchmark lending rates unchanged at 8%, despite a clamour from business to lower borrowing costs to spur the economy.

While manufacturing input price pressures eased, output prices are still rising, meaning the central bank cannot lower its inflation guard, economists said.

"Headwinds for domestic demand, such as elevated inflation and interest rates, suggest a sharp pick-up in activity remains unlikely," said Capital Economics Asia analyst Krystal Tan. – AFP