India's manufacturing sector expanded in February at the strongest pace in 12 months, driven largely by growth in new business orders and an improved macroeconomic situation, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers' Index (PMI), a measure of factory production, stood at 52.5 in February, up from 51.4 in the previous month, signalling a solid and stronger improvement in business conditions across the country's manufacturing sector.
Activity in the sector expanded for the fourth consecutive month in February. A PMI reading above 50 indicates growth while a lower reading means contraction.
"Manufacturing activity picked up further in February. New order flows have firmed, with the improvement in external demand and the reduction in macroeconomic uncertainty since last summer," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
Production growth accelerated on a stronger rise in incoming new work. The pace of output expansion was solid and the quickest in one year. Higher demand from both domestic and export clients boosted order flows in February.
Eskesen, however, noted that the recovery in manufacturing is still likely to prove "protracted" given the lingering structural constraints.
On inflation, the report said input costs rose during February and subsequently, average tariffs were raised further last month. The annual rate of inflation, based on the monthly wholesale price index, eased to a seven-month low of 5.05 per cent in January.
"Underlying inflation pressures remain potent, which was evident from the jump in the input price component of the PMI survey. This will keep RBI hawkish and likely compel it to raise rates a bit further this year," Eskesen said.
Reserve Bank of India (RBI) Governor Raghuram Rajan had raised the key policy rate by 0.25 per cent to 8 per cent in the third quarter review of monetary policy in a bid to curb inflation.After Rajan took over as RBI Governor in September, the apex bank increased the key policy rate three times by 0.25 per cent each.