We don't see the exchange rate as something that we can manipulate in a significant way: Raghuram Rajan
India's manufacturing growth remained unchanged in February following price reductions even as new orders registered the strongest upturn since last September.
The Nikkei purchasing managers’ index (PMI) survey showed manufacturing at 51.1 points in February, unchanged from the January reading, but nonetheless showing pointing to a second consecutive monthly improvement in business conditions across the sector.
The seasonally-adjusted is a composite single-figure indicator of manufacturing performance and a reading above 50 represents expansion while one below this level means contraction. The January data had been a 4-month high after manufacturing recovered from 49.1 in December.
"The Indian manufacturing economy edged further in the right direction during February, eking out modest gains in new orders and output," Pollyanna De Lima, economist at Markit said.
However, a faster expansion in new business inflows failed to lift growth of output and workforce numbers were left broadly unchanged again, the monthly survey noted.
"Although businesses saw a stronger rise in new work, data implied that this was partly driven by price reductions," Lima noted.
Sub-sector data indicated that consumer goods continued to be the best performing category, where growth rates for output and new orders surpassed those seen at intermediate goods firms. Concurrently, the investment goods industry saw a deterioration in business conditions, with output and new orders remaining in contraction territory.
Price pressures softened with input costs registering a slower rise in February. Along with efforts to secure new work, manufacturers lowered their average selling prices in February for the first time in five months. The rate of discounting was, however, only marginal.
However, the survey noted that incoming new work increased for the second straight month and at the quickest rate since last September. According to survey members, underlying demand continued to improve. New business from abroad also rose, although February saw a loss of growth momentum.
According to official figures, merchandise exports contracted for 14 months in a row till January 2016. While PMI declined to 50.7 points in October from 51.2 points in the previous month, official figures showed that manufacturing was up almost 10 per cent in October. As such, the PMI numbers should be cautiously interpreted.
On the jobs front, Nikkei noted that February data highlighted broadly unchanged levels of employment across the Indian manufacturing sector. Anecdotal evidence indicated that firms held off hiring amid an increasing degree of cost consciousness in the face of relatively soft demand conditions, it said.
"Goods producers continue to benefit from lower crude oil prices in global markets, which put brakes on inflationary pressure. In light of these numbers, RBI has scope to loosen monetary policy to spur the economy," Lima said.
Meanwhile, RBI Governor Raghuram Rajan on February 2 left the key interest rate unchanged citing inflation risks and growth concerns, while pegging further easing of monetary policy to the government's Budget proposals.