India’s manufacturing activity improved for a fifth straight month in May but a drop in new export orders slowed output growth, a private survey showed on Wednesday.
The seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI) edged higher to 50.7 in May from April’s 50.5, according to data compiled by Markit. Growth was led by the domestic market as new export orders fell for the first time in 32 months, it said.
The PMI data highlight the challenges authorities face in sustaining high economic growth. It comes a day after the Indian government said growth in gross domestic product for the January-March quarter accelerated, pushing the pace of expansion for the full year 2015-16 to a five-year high of 7.6%.
According to Markit, Indian companies took on additional workers and bought more inputs for use in the production process. But cost inflation climbed to the strongest since March 2015, indicating rising price pressures.
“Signs of challenging economic conditions in the Indian manufacturing sector were evident in May, with output losing further growth momentum. The headline PMI remained in expansion territory, but recorded one of its lowest readings since the end of 2013, suggesting that the sector is barely improving,” said Pollyanna De Lima, economist at Markit.
De Lima said there is little evidence so far that the latest cut in the benchmark rate acted to significantly improve business conditions for manufacturers. “Therefore, further stimulus may be necessary to shift the economy into a higher gear.”
The Reserve Bank of India has lowered interest rates by 150 basis points since January 2015, including a 25-basis-point reduction at its last monetary policy review in April. RBI governor Raghuram Rajan has been under pressure to cut rates even more to stimulate demand and boost growth but he is likely to stand pat at the next rate-setting meeting on June 7 in view of the acceleration in economic growth and a recent uptick in inflation.
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