Manufacturing growth slows down in Feb: HSBC Survey

India's manufacturing sector growth slowed marginally in February, although strong domestic orders were likely to support output expansion in the coming months, an HSBC survey has said.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) -- a measure of factory production -- eased to 56.6 in February as against 57.5 in January owing to a moderation in sequential output growth.

A reading above 50 shows that the sector is growing, while a reading below 50 means the segment is contracting.

"Output growth eased in February, but remained above trend and rising domestic orders suggests that it should remain well-supported in coming months absent a further worsening of global economic conditions," HSBC Chief Economist for India & ASEAN Leif Lybecker Eskesen said.

India's economy grew at 6.1 per cent in the third quarter this fiscal, the slowest in over two years, prompting corporates and experts to press for faster reforms to boost industrial output.

The economy had expanded by 8.3 per cent during the corresponding quarter a year ago.

The falling growth rate may prompt the Reserve Bank to cut rates at its mid-quarterly policy review on March 15.

Finance Minister Pranab Mukherjee too is expected to announce steps to arrest contraction in growth in the Budget for 2012-13, to be presented in the Lok Sabha on March 16.

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HSBC report however said that "with inflation still coasting above trend, the RBI has to embark on its easing cycle in a calibrated fashion, meaning not too soon and not too aggressive."

While headline WPI inflation eased in January, largely due to a strong food price base effect and core inflation decelerated too, but remained well above RBI's comfort zone.

The report further noted that price trends from the PMI surveys in recent months suggest that underlying inflation pressures are still strong and the RBI should not jump the gun on rate cuts, including when also factoring in the upside risks to oil prices from geopolitical tensions.

With output growing above trend, factories are still operating under tight capacity. Backlogs of work rose to 52 in February as against 51.6 in January and supplier delivery times worsened to 49.3 in February as against 50.3 in January.

Elaborating on this, Eskesen said "this is likely testament to the inadequate implementation of key supply side reforms in recent years, which has left the supply side of the economy struggling to keep up with the demand side.

In turn, this also explains why inflation pressures continue to simmer despite the slowdown in growth during the second half of last calendar year, Eskesen added.