India manufacturing output jumps to 13-month high in August
Photo Credit: Shah Junaid/VCCircle

India’s manufacturing activity surged to a 13-month high in August thanks to a sharp uptick in new business inflows, a private survey showed on Thursday. 

The seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI) climbed to 52.6 in August from July’s 51.8, according to data compiled by Markit. 

New business inflows rose at the quickest pace since December 2014 due to higher demand from both the local and export markets. Export orders increased at the fastest rate in one year in August, Markit said. 

In terms of sectors, growth was led by consumer goods producers. Intermediate and capital goods makers also noticed an improvement.

"The positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new work, buying levels and production accelerating further," said Pollyanna De Lima, economist at Markit and author of the report. "Moreover, the sector’s growth dynamics for the near term are encouraging as companies will likely continue their efforts to replenish stocks."

Input costs in August rose due to higher prices of fuel and other raw materials but  the pace of increase was the slowest since February, offering a little respite to companies.

Job creation was only marginal as a vast majority of companies kept staff numbers unchanged even though higher demand led some companies to hire workers.

De Lima said the survey pointed out that input costs and output charges grew at a slower pace. This gives the Reserve Bank of India room to ease monetary policy at its October meeting to support growth, she added.

The RBI has lowered interest rates by 150 basis points since January 2015, including a 25-basis-point reduction in April. But RBI governor Raghuram Rajan, whose term ends this month, kept rates unchanged at the policy review meeting on June 7 and August 9 citing inflation risks.

The Markit data came a day after the government numbers showed the Indian economy expanded 7.1% in the April-June quarter, slowing from the 7.9% pace in the previous three months, adding pressure on the RBI to cut interest rates to boost growth.

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