India’s Manufacturing Sector Expanded at its Fastest Pace in Eight Months in January 2012

HSBC Purchasing Managers’ Index — a headline index designed to measure the overall health of the manufacturing sector  registered a reading of 57.5 in January 2012 up from 54.2 in December  2011. As per  survey released on 1 February 2012, India’s manufacturing sector expanded at its fastest pace in eight months in January on the back of a sharp increase in new orders.

The figures suggest a pick up in a sector that has been battered by feeble growth in the United States and Europe and a prolonged spell of monetary policy tightening in India.

India’s factory output sub-index jumped to 62.9 in January 2012 from 55.8 in December 2011 the biggest rise from one month to the next on record. Both the output and the new orders indexes rose to their highest level since May last year.

The Survey revealed

The PMI showed the strongest improvement in business conditions since May 2011. The 50-point mark separates growth from contraction. Activity in the manufacturing sector rebounded again in January led by higher demand from both domestic and foreign clients.

The PMI survey found the rate of expansion accelerated and the overall improvement in demand and market conditions had led to the rise in new order volumes.Growth of new export business also accelerated in the latest survey period.

The survey also showed input prices faced by Indian manufacturers increased substantially in January 2012. Higher raw material costs were cited as the main driver of input price inflation. The rate of increase was slightly faster than in December 2011. Subsequently, manufacturers raised their output prices again.

The stock market rose a record 11.3%, the highest gain since 1994, in January. The rupee, which had a torrid 2011, also gained more than 6% in January 2012.

The RBI & Inflation

The Reserve Bank of India (RBI) shifted its policy stance to promoting growth from battling inflation. The central bank in january 2012 cut the cash reserve ratio (CRR) - the proportion of deposits that banks have to hold with the central bank - by 50 basis points.

Inflation in India however continues to be a concern. input prices for manufacturers was found to rise 63.4 in January from 62.7 in December 2011.