India's manufacturing sector is expected to post moderate growth in the days ahead as RBI may find it difficult to cut interest rates in view of high inflation, says an HSBC survey.
The manufacturing sector, which is the main engine for growth, slipped marginally in May due to slowing domestic order book, the survey said.
HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - slipped slightly to 54.8 in May, from 54.9 in April.
According to the recent economic data, the manufacturing sector output contracted by 0.3% in January-March 2012 as against rise of 7.3% in the year ago period.
In view of high inflation, HSBC chief economist for India and Asean Leif Eskesen said, "the RBI does not have a strong case for further rate cuts, which if implemented could add to lingering inflation risks."
The Reserve Bank, in its mid-quarter credit policy on June 18, will take a call on steps to arrest decelerating growth while trying to contain inflation.
The economic growth slowed to a 9-year low in March quarter at 5.3%, and 6.5% for the entire 2011-12 fiscal.
After showing a marginal decline in March to 6.89%, wholesale price-based inflation rose to 7.23% in April. The rise in inflation was mainly due to increase in prices of food items.
The retail price inflation (CPI) entered double digits of 10.36% in April from 9.38% in March.
According to HSBC, growth in India's manufacturing sector slipped marginally in May as the marked growth in output was impacted by slowing domestic order book.
"Activity in the manufacturing sector kept up the pace in May with output, quantity of purchases and employment expanding at a faster pace. New orders decelerated slightly led by domestic orders," Eskesen said.
Eskesen further cautioned that going ahead a slight moderation in output growth is likely.
New orders at Indian manufacturers increased in May but the rate of expansion was slightly weaker than in April as power cuts, had hampered operations, preventing a faster rise in output.
"Power shortages, as well as insufficient employee numbers, led to a marked accumulation of backlogs of work that was only fractionally weaker than March's series record," the survey said.
Meanwhile, firms raised charges at one of the fastest rates in the series history, as Indian manufacturers passed on higher input costs to their clients in May.
According to HSBC output prices rose for the thirty-third month in a row, and at one of the fastest rates in the history of the series.