India’s factory growth in July at its fastest in four months

The Dollar Business Bureau

The factory activity in India in July increased at its fastest in four months on account of surge in export orders. However, prices stayed muted, providing room to the Reserve Bank of India (RBI) to further ease the policy if required, said a private survey on Monday.

The Nikkei/Markit Manufacturing Purchasing Managers' Index (PMI) surged to 51.8 in the month of July compared to June's 51.7, marking its 7th month beyond the 50 level which segregates growth from contraction.

“India's manufacturing economy is reviving at the beginning of the second half of 2016 after the slowdown seen in the April-June quarter, as growth in both production and new orders continued to strengthen in July," said Pollyanna De Lima, Economist at Markit, the survey compiler.

Both the sub-indexes - production and fresh orders, jumped to their peak since March.

Amongst the new orders, consumer goods witnessed a robust pace of expansion, whereas export orders grew the fastest from January, supported mainly by decline in the rupee.

Input costs increased at a moderate and slow pace, but improvement in demand meant companies were able to transfer some of that load, the survey said.

“With the rate of inflation staying lower compared to the respective long-run medians, it would be expected that the RBI may relax the monetary policy in its meeting in August to enhance investment,” said De Lima.

Some economists, surveyed by Reuters last month, predicted a cut in rates between October and December.

This would provide room to the Indian government to primarily focus on major economic reforms like the proposed Goods and Services Tax (GST) bill, which is going to replace all federal and state taxes with a single tax.

India’s consumer inflation increased to 5.77 percent in the month of June, beyond the March 2017 target of 5 percent set by the RBI. However, it would be eased if the above-average rainfall in this monsoon season helps to control the increasing food prices.