PMI Manufacturing at a year high in Feb

Showing signs of recovery in the fourth quarter, HSBC PMIfor manufacturing at 52.5

Showing signs of recovery in the fourth quarter, the HSBC Purchasing Managers' Index (PMI) for manufacturing stood at 52.5 points in February, a one-year high. It was 51.4 points in January.

"The Indian manufacturing economy showed signs of strengthening in February with faster increase in output and new orders bolstering PMI to reach a one-year peak," said Markit Economics, a financial firm which compiles the data.

A reading above 50 shows expansion in the sector. This comes a few days after the Gross Domestic Product (GDP) data had dashed all hopes among economists about a possible recovery in the current financial year. According to the data released on Friday, the GDP grew 4.7% in the third quarter of 2013-14 against 4.8% in the previous quarter.

The data showed that manufacturing sector, which constitutes the major part of industries, had contracted 1.9% in the December quarter against a% growth a quarter back. In fact, the advance estimates have projected a 0.2% decline in the sector for 2013-14 -- a first time contraction since 1991-92.

According to Markit Economics, high production in February was boosted by smooth flow of incoming new work, the survey noted. New orders reached its peak in February, with the work flow increasing for the fourth straight month this year."New order flows have firmed, with the improvement in external demand and the reduction in macroeconomic uncertainty since last summer," said Leif Eskesen, Chief Economist for India and ASEAN at HSBC. "This, in turn, has provided the lift to output growth," he added.However, structural issues were still prevalent in the economy which might subsume the potential growth in the sector.The recovery in activity is still likely to prove protracted given the lingering structural constraints, said Eskesen.

A few economists feel that the PMI data indicates that the fourth quarter may witness slight improvement in the manufacturing sector. "The fourth quarter would be better than the first three quarters in the sense that the contraction could be comparatively less than that witnessed previously," said DK Joshi, chief economist, CRISIL. However, Joshi said that a substantial recovery does not look in sight due to political instability ahead of the general elections, slowing economy and weak demand.

The PMI data showed inflation in the input material for production rose at the fastest rate in four months. "This might keep the RBI (Reserve Bank of India) hawkish and likely compel it to raise rates a bit further this year," said Eskesen.Industries have been demanding a policy rate cut from the central bank. However, uncomfortably high inflation has refrained it to go for a rate cut in its monetary policy reviews.The RBI had raised repo rate by 25 basis points to 8% in the third quarter review in January end, citing high retail inflation as the trigger for the move.

The Consumer Price Index (CPI) inflation, a measure of retail inflation, had eased to a three month low of 9.87% in December. The next policy review is due on 1 April.The PMI survey pointed that consumer goods segment was the best performing one in manufacturing sector.