India factory activity unexpectedly expands in August as orders bounce back

India’s factory activity unexpectedly expanded in August, snapping back from a contraction the previous month, as disruptions stemming from confusion over a new national sales tax eased, a business survey showed on Friday.

The rebound suggests that India’s economic growth rate, which unexpectedly slipped to a three-year low of 5.7 percent in the April-June quarter from a year ago, may also improve in the current quarter.

The Nikkei/Markit Manufacturing Purchasing Managers’ Index rose more than three points to 51.2 in August from 47.9 in July, beating the median economist forecast of 49.3 in a Reuters poll. A reading above 50 indicates expansion.

That was the biggest one-month jump in 5-1/2 years.

“In July, firms indicated that orders, production and purchasing had been postponed due to a lack of clarity about the new tax regime, but they have now been resumed as manufacturers, suppliers and their clients have become more knowledgeable of the GST rates,” said Pollyanna De Lima, economist at IHS Markit, in a release.

That surprise growth slowdown from 6.1 percent in the previous quarter undercut the median forecast of 6.6 percent in the Reuters poll by nearly a percentage point.

Prime Minister Narendra Modi’s shock move last November to scrap high-value banknotes late last year has continued to weigh on overall economic activity.