Mumbai: Indian manufacturing activity in October expanded at its fastest pace in the 31-month history of a survey, signalling the economy remained strong despite a series of policy tightenings.
The ABN AMRO Bank purchasing managers’ index (PMI) rose to a seasonally adjusted 61.7 in October from 59.3 in September, the highest reading since the survey started in April 2005 and the first time the index has been above 60 points.
Demand may be picking up as the festival season, which usually starts in September and runs until December, spurs spending on clothes and consumer goods such as motorcycles, cars and televisions.
“The October PMI survey results suggest that the recovery and the subsequent improvement in overall business conditions over last three months is on a broader base and therefore sustainable,” said Gaurav Kapur, an economist at ABN Amro Bank.
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 50.0 signals expansion while readings below 50.0 suggest contraction. The new orders index rose to 70.9 in October, its highest level in the survey’s history, from 66.6 in September. The new export orders index climbed to 61.0 in October, also a survey high, from 56.6 in September.
Output kept pace with new orders, with the index rising to a survey peak of 66.6 from 62.8 in September.
Along with the pick-up in activity, output prices rose even as input costs moderated.
The output prices index rose to 55 in October, its highest level since August 2006, from 53.3 in September. Input prices eased to a 3-month low of 54.1 in October from 56.8 in September.
At a policy review on 30 October, the central bank raised banks’ cash reserve requirements by 50 basis points to 7.50% to drain excess inflation-fuelling cash from the banking system. Key interest rates were left unchanged.
It has raised banks’ reserve requirements by 250 basis points since December 2006 and increased interest rates five times since mid-2006. India’s annual inflation rate was 3.07% in mid-October, its lowest in five years and well below the central bank’s target of 5% for the fiscal year.
Analysts say inflation may flare up in the coming months as higher global oil and food prices trickle into the local economy.