Indian Manufacturing Sector’s Purchasing Managers’ Index (PMI) which is seasonally prepared by Markit, has consistently been below 50.0 since July 2013. 50 is the point in the index that differentiates a state of growth from one of contraction. In November though, there has been a spike in manufacturing sector activity with the PMI climbing to 51.3 due to new orders and increased output.
This also coincides with a spike in GDP growth in the second quarter this fiscal year which can be attributed to increased performance of manufacturing, construction, farm, and services sectors. Export, which is an indicator of India’s economic health, has also grown but only marginally. This would suggest that the domestic market was the main contributing factor for the GDP growth.
Industry experts claim that easing of RBI’s interest tightening cycle was also one of the other contributing factors to the improved performance. This can be corroborated with the fact that Wholesale Price Index based inflation was at an eight-month high in October (7%), and Consumer Price Index based inflation rose to 10% in the same month.
Inflation is a continuing concern for the economy and it is expected that the RBI will raise the rates again towards the end of this fiscal year. The goal is to maintain the rate of 5% which the RBI considers acceptable, which will consequentially help lower borrowing costs and increase economic activity.
Vaibhav Sharma 