Mumbai: Indian manufacturing activity expanded in December at its fastest pace in almost three years, indicating the economy was growing at a strong clip despite a series of policy tightenings.
The ABN AMRO Bank purchasing managers’ index (PMI) rose to a seasonally adjusted 61.9 in December from 60.9 in November to mark the highest reading since the survey started in April 2005 and the third consecutive month it has been above 60.
The PMI, compiled by UK-based NTC research and sponsored by the Dutch bank, tracks changes in manufacturing business conditions by polling 500 companies each month on output, new orders, employment and prices.
A reading above 50 signals expansion while readings below 50 suggest contraction.
“This is a reflection of a pick-up in domestic consumption, after witnessing some moderation due to higher interest rates in the previous quarter, and also corresponds with higher bank credit off-take since October,” said Gaurav Kapur, senior economist at the Dutch Bank.
India’s festival season runs between September and December and usually leads to increased sales of goods from clothes to cars. The main Diwali festival was celebrated in early November.
“Robust activity levels in the manufacturing sector also signal that overall momentum in the other parts of the economy is quite strong,” Kapur said.
Demand kept pace with the pick-up in manufacturing. The new orders index rose to 72.1 in December, also the highest in the history of the survey, from 70.1 in November.
The output index rose to 65.3 in December from 64.9, and the index of the quantity of purchases by manufacturers rose to 69.7 from 68.3 in November.
The employment index rose to a 17-month high of 52.2 from 51.8% in November.
The output price index eased for the second consecutive month, falling to 53.7 from 54.1.
Input prices declined marginally to 54.2 from 54.3 in November.
Export growth flagged, with the index at 57.6 in December from 59.1 in November and 61.0 in October, which Kapur said could be due to a slowdown in key export markets.
India’s economy grew in the September quarter by 8.9% from a year earlier, moderating from annual growth of 9.3% in April-June as higher interest rates and a strong rupee hit manufacturing and exports.
Annual inflation was 3.65% in early December, well below the central bank’s target of 5% for the fiscal year.
The central bank has increased interest rates five times since mid-2006, most recently in March, and raised banks’ reserve requirements by 250 basis points since December 2006.