India’s manufacturing sector expanded at its fastest pace in five month during March, driven by strong growth in domestic as well as export work orders, the Nikkei India Manufacturing PMI survey showed on Monday, reviving hopes of a faster economic activity after remonetisation.
The Manufacturing Purchasing Managers’ Index (PMI) -- an indicator of manufacturing activity -- increased to a five-month high of 52.5 in March from 50.7 in February as production and order books expanded at the quickest pace. A reading above 50 indicates expansion, while any score below the mark means contraction.
“Moreover, firms hired additional employees to cope with greater workloads,” the report said.
March is the third straight month in which manufacturing sector improved after the demonetisation-induced contraction at the end of 2016.
While the scrapping of Rs 500 and Rs 1,000 notes worth Rs 15.44 lakh crore crippled demand, the government and RBI have been trying to print new cash to quickly remonetise Asia’s third largest economy.
The robust PMI data comes after dismal infrastructure and industrial data in January and February.
Earlier, government data showed India’s infrastructure sector grew at its slowest pace in five months in February mainly due to lower cement output. India’s industrial output grew just 2.7% in January as cash ban dampened consumer demand.
“PMI data for March reveal positive developments in the Indian manufacturing sector. Rates of expansion in factory orders and production accelerated again, encouraging some companies to scale up their input buying and take on additional workers,” said Pollyanna De Lima, Economist at IHS Markit and author of the report.
On the prices front, the report said although both input costs and output charges rose further, inflation rates softened from February. During March, the rate of inflation slowed to the weakest in four months and was below the long-run survey average.
“Given that input costs rose at a softer pace, a whopping 96 per cent of goods producers kept their selling prices unchanged over the month,” Lima added.
The Reserve Bank in its policy review meet on February 8 kept key interest rate unchanged at 6.25% and said it is awaiting for more clarity on the inflation trend and impact of demonetisation on growth.
The next meeting of the MPC (Monetary Policy Committee) is scheduled on April 5 and 6, 2017.
Going ahead, the outlook looks bullish as business confidence among manufacturers improved in March, with almost one-fifth of panelists expecting output levels at their units to be higher in 12 months’ time.
Lima further noted that production volumes are likely to rise further as businesses will seek to replenish their stocks.
“Indeed, we saw a marked drop in inventories of finished items, alongside a stronger degree of confidence towards the year-ahead outlook for output,” she added. (With inputs from PTI)