Factory output rises fifth month in a row

Factory output rises fifth month in a row

New Delhi: India’s manufacturing output rose for a fifth straight month as higher government spending and lower interest rates boosted domestic demand, a key gauge showed.

The Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics fell to 53.2 in August from a revised 55.4 in July, a report released on Tuesday said. That was the fifth monthly reading above 50, which indicates a gain in factory production.

A rebound in manufacturing helped economic growth accelerate for the first time since 2007 in the three months to June, a report showed on Monday. Policies employed by the Reserve Bank of India (RBI) and the government are providing a stimulus to the economy worth at least 12% of gross domestic product.

The increase was largely powered by the home market as new export order growth remained subdued, said Robert Prior-Wandesforde, senior Asian economist at HSBC Holdings in Singapore. A better economic situation and successful marketing activities were the primary factors underlying the rise, he said.

Manufacturing grew 3.4% in the quarter ended 30 June from a year earlier after shrinking 1.4% in the last three months. Growth in the economy quickened to 6.1% last quarter from 5.8%.

Volkswagen AG, Toyota Motor Corp. and other car manufacturers have announced plans to spend at least $6 billion (Rs29,220 crore) through 2012 to build factories in India to offset slumping demand in their home markets.

To buoy local demand, RBI slashed its benchmark interest rate six times since October.

“The index expanded at a slower pace in July, which in our view is more likely to represent a pause for breath than a peaking out of the industrial cycle," Prior-Wandesforde said. “There is still plenty more in the way of fiscal and monetary stimulus effects to come through to the economy."