India's manufacturing sector witnessed the slowest rate of expansion in 16 months in March as power outages hampered production activity and decline in new business orders, an HSBC survey said on Monday.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - stood at 52 in March down from 54.2 in February. Persistent power cuts weighed on the manufacturing sector. Moreover, the volume of incoming new work increased at the slowest pace in 16 months and export orders expanded at the slowest pace in seven months, HSBC said.
Though the index has remained above the 50 mark, below which it indicates contraction, for more than three years now. The PMI reading for March showed that manufacturing operating conditions in the country has improved at slowest rate since November, 2011.
"Manufacturing activity lost momentum in March, with output growth slowing notably on the back of a deceleration in new orders and power outages," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
Last month India's current account deficit hit a record 6.7% of GDP in December quarter to $32 billion on account of surge in oil and gold imports, besides weak exports. Eskesen further noted that output could get a lift in coming months as inventories are replenished.
Inventories of finished goods were depleted to meet demand, partly due to the output disruptions caused by power cuts. Meanwhile, HSBC said even as input as well as output prices increased at a moderate pace during March, the scope for further monetary policy easing remains "limited".
"Encouragingly, input and output price inflation eased. Even so, the scope for further monetary policy easing remains limited," Eskesen said. The Reserve Bank in its mid-quarter monetary policy review on March 18 reduced the indicative policy rate (repo rate) by 25 basis points from 7.75 to 7.50%. Repo rate is the rate at which banks borrow short-term funds from the central bank.
India's GDP growth in the third quarter of 2012-13 stood at 4.5%, the weakest in the last 15 quarters.