The manufacturing sector, which is the main engine for growth, slipped marginally in May due to slowing domestic order book with the HSBC India Manufacturing Purchasing Managers’ Index (PMI) — a measure of factory production — slipping marginally to 54.8 in May from 54.9 in April.
“Activity in the manufacturing sector kept up the pace in May with output, quantity of purchases and employment expanding at a faster pace. New orders decelerated slightly led by domestic orders,” HSBC chief economist for India and Asean Leif Eskesen said.
Eskesen further cautioned that going ahead a slight moderation in output growth is likely. New orders increased in May but the rate of expansion was slightly weaker than in April as power cuts hampered operations, preventing a faster rise in output.
The economic growth slowed to a 9-year low in March quarter at 5.3 per cent, and 6.5 per cent for the entire 2011-12 fiscal. The manufacturing sector output contracted by 0.3 per cent in January-March 2012 as against rise of 7.3 per cent in the year ago period.
In view of high inflation, Eskesen said, “The RBI does not have a strong case for further rate cuts, which if implemented could add to lingering inflation risks”.
The central bank, in its mid-quarter credit policy on June 18, will take a call on steps to arrest decelerating growth while trying to contain inflation. After showing a marginal decline in March to 6.89 per cent, wholesale price-based inflation rose to 7.23 per cent in April on rising food prices. The retail price inflation (CPI) climbed to 10.36 per cent in April from 9.38 per cent in March.
“Power shortages, as well as insufficient employee numbers, led to a marked accumulation of backlogs of work that was only fractionally weaker than March’s series record,” the survey said.
Meanwhile, firms raised charges at one of the fastest rates in the series history, they passed on higher input costs to their clients in May.
According to HSBC, output prices rose for the 33rd month in a row, and at one of the fastest rates in the history of the series.