Growth in manufacturing activities slowed to a three-month low in January due to power outages and subdued orders, shows the much-tracked HSBC Purchasing Managers' Index (PMI). This data came even as policy makers expect the economy to perform better in the fourth quarter (January-March) of 2012-13.
The survey also showed inflation was coming down but gradually, justifying the Reserve Bank’s cautious stance last month on a rate cut.
Manufacturing PMI posted 53.2 points, compared to 54.7 in December. A reading above 50 shows growth; below 50, a contraction. In December, manufacturing PMI had hit a six-month high.
The data is important as no firm trend has been established on whether India is witnessing the start of economic recovery. Official industrial production data, where manufacturing is the dominating sector, do not point to any direction. While October saw industrial growth at a little over eight per cent, it was negative in November. The sharp change in just two months is not surprising, as this is the usual trend in pre-Diwali and post-Diwali months.
PMI data are a month-on-month calculation and based on a survey of around 500 large manufacturing companies. The government’s official data are a year-on-year measurement and represent actual numbers.
HSBC chief economist Leif Eskesen attributed the slower growth to weak expansion in new orders and ongoing issues with power supply.
"Growth momentum in the manufacturing sector eased in January, as slower expansion in new orders and power outages slowed output growth," he said. Both input and output price inflation continued to ease, albeit gradually, he said, supporting the case for RBI's cautious 25-basis point cut in the repo rate earlier this week.
Blaming outage for slower growth, a statement by Markit Economics, which compiles PMI, said there was a huge backlog of work because of frequent power cuts in December as well, from anecdotal evidence. Though the improvement was slight, pre-production inventories rose in January for a ninth month in a row.
The volume of incoming new work rose for a 46th consecutive month and exports went up a fifth month in a row.
The panel members said demand from foreign clients rose in January. Because of the improvement in sales, manufacturers raised their input buying. Though the level of employment went up in January, the rate of growth was as slow as in December.