Manufacturing index hits 27-month high

The manufacturing sector in India expanded at its fastest rate in more than two years in May...

The manufacturing sector in India expanded at its fastest rate in more than two years in May,bolstered by steady growth in output,new orders and employment. The HSBC Markit Purchasing Managers8217; Index PMI ,based on a survey of 500 firms,surged to a 27-month high of 59.0 from 57.2 in April. It was the 14th consecutive month that the indicator has been above the 50 mark that divides growth from contraction.

The rate of growth had slowed in March and April. The latest figure underlines considerable strength in the economy,which grew 8.6 per cent in the March quarter,the strongest in six months,according to data released on Monday.

The Indian economy is hardly pausing for breath, said Frederic Neumann,co-head of Asian Economics Research at HSBC. Output growth remains at a robust pace and new orders continue to pour in. This is benefiting the job market as more and more firms are hiring, he added.

The new orders index climbed to 63.7 in May from 61.9 in April,primarily driven by strong domestic demand,according to the PMI report. It was the 14th consecutive month when new orders expanded. The robust growth seen by Indian manufacturers helped push the employment index to its highest reading since August 2005,signalling modest job creation across the economy.

The latest survey also showed five-year series highs in the backlogs of work index and stocks of raw materials,boosted by strong demand from both public and private sectors. While all the figures point to a sharp improvement in business conditions,resulting price pressures might be a cause for concern as Asia8217;s third-largest economy continues to battle stubbornly high inflation.

Price pressures remain elevated and are of concern. However,the recent readings point to a stabilization of price pressures,with both the input and the output price indices easing back a little in May, Neu- mann said.

The RBI raised interest rates by 50 basis points since mid-March to curb mounting price pressures and is expected to deliver another 25 bps hike at its policy review in late July,though some market watchers believe worries about Europe8217;s sovereign debt problems could slow the pace of further increases in the near term.