Bloomberg News

Indian Manufacturing Expands at Close to the Fastest Pace in Eight Months

March 01, 2012

Indian companies have struggled as economic expansion eased. Photographer: Dhiraj Singh/Bloomberg

Indian companies have struggled as economic expansion eased. Photographer: Dhiraj Singh/Bloomberg

India’s manufacturing grew at close to the fastest pace in eight months, adding to signs global economic prospects may improve after a Chinese gauge climbed.

The Purchasing Managers’ Index was at 56.6 in February from 57.5 in January, HSBC Holdings Plc and Markit Economics said in an e-mailed statement today. A number above 50 indicates growth.

Recent reports have shown gains in capital spending by Japanese companies, South Korea’s largest climb in exports in six months and an increase in a Chinese purchasing managers’ index for a third straight month. India’s central bank is due to assess the nation’s economic outlook, including slowing inflation, when it sets interest rates on March 15.

“Activity in the manufacturing sector continued to expand in February, although at a slightly slower pace,” said Leif Eskesen, an economist at HSBC in Singapore. Rate cuts by the Reserve Bank of India, which are expected to begin in April to June, will “have to be gradual,” he said.

The rupee weakened 0.4 percent to 49.2013 per dollar at 1 p.m. local time. It has rebounded 7.9 percent so far in 2012 after sliding 16 percent last year. The BSE India Sensitive Index (SENSEX) declined 1.2 percent. The yield on the 8.79 percent note due November 2021 rose two basis point, or 0.02 percentage point, to 8.22 percent.

Governor Duvvuri Subbarao reviews borrowing costs the day before Finance Minister Pranab Mukherjee unveils the budget for the next fiscal year.

Easing Inflation

Indian inflation eased to a 26-month low of 6.55 percent in January, after exceeding 9 percent for most of 2011. The economy expanded 6.1 percent last quarter from a year earlier, the slowest pace in more than two years.

The Reserve Bank raised rates by a record 3.75 percentage points from March 2010 to October last year, to 8.5 percent, in an attempt to restrain price rises. Costlier credit and slower exports as Europe’s debt crisis hurt demand contributed to the slowdown in Asia’s third-largest economy in 2011.

The Reserve Bank on Jan. 24 cut the amount of deposits lenders need to set aside as reserves for the first time since 2009, seeking to ease a cash squeeze.

It said inflationary threats, such as the fiscal deficit and energy prices, made it “premature” to start reducing borrowing costs, while reinforcing guidance that future rate actions will be towards lowering them.

Fiscal Deficit

The pace of price increases in India is the fastest in the so-called BRIC group that also includes Brazil, Russia and China.

In China, the purchasing managers’ index rose to 51.0 in February from 50.5 in January, the statistics bureau and logistics federation said.

Indian inflation remains an area of concern in the current financial year, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in the southern Indian union territory of Puducherry today.

The budget shortfall may surge to 6.1 percent of gross domestic product in the year to March, according to Nomura Holdings Inc. and Kotak Mahindra Bank Ltd., exceeding Mukherjee’s goal of 4.6 percent.

Indian companies have struggled as economic expansion eased. Maruti Suzuki India Ltd., India’s biggest carmaker, posted a 64 percent drop in third-quarter net income after a strike by workers and lower demand damped sales.

To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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