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NEW DELHI : India’s manufacturing activity grew at a higher-than-expected clip but remained flat in May compared with the previous month, even as other major exporting economies saw a decline. Factory orders continued to rise in India despite sellers passing on additional costs to buyers. The selling price rose to its highest in more than eight-and-a-half years as cost increases were passed on to clients, in turn impacting overall business sentiment.

The S&P Global India Manufacturing Purchasing Managers’ Index (PMI) came in at 54.6 points in May compared with 54.7 points in April, but remained steady as sales increased because of a sharp rise in international orders, the strongest in more than 11 years.

The 50-point mark separates expansion from contraction in PMI, a monthly indicator of factory activity. Released separately, S&P Global’s final manufacturing PMI, the first to be released among major exporting economies, is considered a bellwether for global trade.

The survey-based India report said demand improved despite another uptick in selling price, but businesses were wary of the momentum continuing because of inflationary pressures.

“While firms appear to be focusing on the now, the survey’s gauge of business optimism shows a sense of unease among manufacturers. The overall level of sentiment was the second-lowest seen for two years, with panellists generally expecting growth prospects to be harmed by acute price pressures," said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

Input costs rose for the twenty-second successive month in May, with companies reporting higher prices for electronic components, energy, freight, foodstuff, metals, and textiles. The rate of inflation remained historically elevated, though it was softer than in April.

Demand remained resilient, encouraging companies to continue with their efforts to rebuild stocks and hire more workers. Factory jobs rose further in May and the rate of employment picked up to the strongest since January 2020.

Producers stepped up input buying in May, taking the current sequence of expansion to 11 months.

The government last week announced several measures to cool inflation, including a sharp cut in the excise duty on petrol by 8 per litre and on diesel by 6 per litre.

Retail inflation measured by the Consumer Price Index (CPI) touched an eight-year-high of 7.79% in April and is expected to remain elevated in the coming months.

Inflation has now been above the upper limit of the Reserve Bank of India’s (RBI’s) tolerance band of 2-6% for the fourth straight month. RBI in an off-cycle policy review raised the repo rate by 40 basis points to 4.4%, its first hike in nearly four years.

Meanwhile, declines in factory activity were sharper as China’s strict curbs to contain the spread of coronavirus and the Russia-Ukraine war disrupted supply chains and dampened demand, adding to woes for businesses already struggling with surging raw material prices.

Manufacturing growth slowed last month in economies as diverse as France, Japan, and Malaysia, business surveys showed on Wednesday.

S&P Global’s final PMI for the euro zone fell to 54.6 in May from April’s 55.5, its lowest since November 2020. In the UK, manufacturing activity expanded last month at the weakest rate since January 2021. China’s Caixin/Markit Manufacturing PMI showed a further contraction, standing at 48.1 in May though improving slightly from April’s 46.0, a private survey showed. Japan’s manufacturing activity grew at the weakest pace in three months in May and manufacturers reported a rise in input costs.

-- With inputs from Reuters

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