Survey indicates strong revival in manufacturing

The HSBC Markit Purchasing Managers Index (PMI), one of the most reliable indices tracking the health of the manufacturing sector, climbed to its highest level in one-and-half years to 57.6 in January, 2010. The index had stood at 55.6 in December 2009.

"Any lingering concern that India's manufacturing recovery was tailing off should be put off. A second consecutive rise in PMI has taken the series to a new cycle high consistent on double digit rise in industrial production," said Robert Prior Wandesforde, senior asian economist, HSBC.

The positive results come against the backdrop of Reserve Bank of India's decision last week to start tightening monetary policy by raising the cash reserve ratio 75 basis points. The central bank also expressed confidence in the robust rate of growth in industrial output.

According to latest government data, industrial output as measured by the index of industrial production (IIP) grew at a robust rate of 11.7 per cent in November.

Within the disaggregated data, the new export orders index showed a more than 5 point  jump, the highest since October 2007.

"Production and new orders have both increased for ten straight months…domestic and foreign demand rose considerably since December. The improvement in external demand was noticeable, although total new business growth continued to increase at a rate above export orders," said the report.

Companies reaped the benefit of increasing new orders which led them to step up their production levels. According to the HSBC Markit report, Indian manufacturers sharply raised their output levels during the month in line with the increase in new orders and the latest gains have been above the pre downturn averages.

" The pick-up in exports is extremely heartening and it does point towards a sustainable trend of growth in manufacturing. Growth in industrial output will stay in double digits till the end of this financial year (2009-10) and the encouraging bit is that the composition of lead indicators of the economy are now becoming more and more broad- based," said Jyotinder Kaur and economist with HDFC.

However, though manufacturing output has gathered momentum, the recovery in employment is yet to gain traction. The index showed a "slight" increase in industry employment in January on the back of higher production requirement and capacity constraints. Although weak, the report states that the increase in employment index was the strongest in almost a year and a half.