Mumbai: Indian manufacturing activity rose to a four-month high in June, helped by strong demand, but surging input costs and factory gate prices cast a shadow over the economic outlook, according to a survey released on Tuesday.
Good for now: The outlook index climbed to 63.8, its highest in 2008, as manufacturers geared up to meet the spurt in new orders. Photograph: Rajeev Dabral / Mint
The ABN Amro Bank purchasing managers’ index, or PMI, was a seasonally adjusted 58.6 in June, its highest reading since February and up from a 10-month low of 57.4 in May.
A reading above 50 signals expansion, while a figure below 50 suggests contraction.
PMI, compiled by UK-based Markit Group Ltd 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.
The output index climbed to 63.8, its highest in 2008 and up for a third consecutive month as manufacturers stepped up activity to meet higher new order volumes, with some firms reporting that competitive pricing had led to new export contract wins.
“This augurs well for the sector in the coming months, where activity levels could remain strong,” said Gaurav Kapur, senior economist at ABN Amro Bank NV.
Costs rose but firms were able to pass that on to customers due to healthy demand, the survey said.
Data on Friday showed wholesale inflation — the most widely followed measure in India — at a 13-year high of 11.42% in mid-June.
Economists said it may go above 12% in coming weeks, inviting further tightening by the Reserve Bank of India (RBI), the central bank, at a review on 29 July.
Last week, RBI raised its key lending rate and the amount of funds banks are required to keep in reserve by 50 basis points each to check inflationary pressures.
A basis point is one-hundredth of a percentage point.
The PMI survey’s input price index rose to a 19-month high of 58.7 and the rate of increase was the strongest since November 2006 as prices of raw materials rose.
Output price inflation climbed for the third consecutive month and was at its highest since October 2007 at 54.7. Ten percent of respondents said that charges had risen since May, while less than 1% noted a reduction.
“This does not bode well for the economy, given that inflation is already running in double digits,” Kapur said.