India manufacturing up on orders: PMI

The index has remained above the 50-mark that divides growth from contraction for more than three years.

Activity in the manufacturing sector expanded at a slightly faster pace in April. While output growth moderated 8230; new orders continued to pour in,including for exports,said Leif Eskesen,chief economist for India amp; ASEAN at HSBC.

The new orders sub-index rose to 61.1 in April after falling to 58.1 in March,buoyed by strong exports,but while remaining solidly above 50 the factory output index fell for the third straight month.

However,actual industrial output data is painting a bleaker picture with India posting sluggish factory production growth of 4.1 percent in February from a year ago,way below the 6.6 percent expected by analysts.

That does not bode well for Asia8217;s third largest economy as factory output accounts for roughly 15 percent of gross domestic product GDP.

Last month economists cut their GDP forecasts for the fifth straight quarterly Reuters poll and now expect growth to average 7.1 percent in the fiscal year to March 2013.

The government is more optimistic,expecting the economy to grow 7.6 percent in the same period,but even that is still a far cry from the near double-digit rates seen before the onset of the global financial crisis in 2008.

The Indian economy has been throttled in recent years by a combination of high inflation,tight monetary policy,weak global economic conditions and the lax implementation of fiscal policies and reforms.

The PMI survey showed the costs of raw materials grew at their fastest pace since August,and firms hiked their prices at the quickest rate in a year.

Fears of adding to inflationary pressures that have plagued the economy might prevent the central bank from cutting interest rates aggressively to stimulate growth.

The Reserve Bank of India cut the repo rate by a greater than expected 50 basis points last month to boost the flagging economy,but warned that it had little room to manoeuvre as inflation was likely to remain elevated.

Inflation accelerated with both output and input prices rising faster,said Eskesen. This suggests that upside risks to inflation remain and that the RBI8217;s rate cut could turn out to have been premature and too aggressive.

Rise in PMI bodes well for rupee: economists

The rise in HSBC8217;s PMI index to 54.9 in April from 54.7 in March is welcome news for the rupee8217;s prospects,economists say

The PMI signals India8217;s manufacturing sector has bottomed out and may also reduce the need for further RBI rate cuts,economists add.

However,the rupee will need more than a PMI report to recover,given the host of economic and fiscal challenges facing India,they also say.

The release reduces the need for further monetary easing and is positive for the INR as well as for levels of INR OIS,although we continue to see the currency as vulnerable to external and fiscal imbalances,Dariusz Kowalczyk,an economist with Credit Agricole CIB in Hong Kong,said.