Indian manufacturing sees fast growth
India's manufacturing sector expanded at its fastest rate in more than two years in May, bolstered by steady growth in output, new orders and employment, a survey showed, another sign the country's economy is surging.
Despite the strong performance and inflation near 10 percent, many economists and traders expect worries about the euro zone debt crisis and the health of the global recovery will prevent the Reserve Bank of India from raising rates before its next quarterly review scheduled for July.
Monsoon rains arrived in southern India on time on Monday, and policymakers will keep a watch on how the rainy season pans out after last summer's drought sent food prices sharply higher.
Exports, meanwhile, rose an annual 36 percent in April to $16.9 billion, the sixth consecutive rise after 13 straight months of decline, the government said, although figures were flattered by a low base effect and could take a knock if the euro zone debt crisis worsens and saps demand.
The HSBC Markit Purchasing Managers' Index (PMI), based on a survey of 500 firms, surged to a 27-month-high of 59.0 from 57.2 in April. It was the 14th consecutive month that the indicator has been above the 50 mark that divides growth from contraction. The rate of growth had slowed in March and April.
The latest figure underlines considerable strength in the economy, which grew 8.6 percent in the March quarter, the strongest in six months, according to data released on Monday.
"The Indian economy is hardly pausing for breath," said Frederic Neumann, co-head of Asian Economics Research at HSBC.
"Output growth remains at a robust pace and new orders continue to pour in. This is benefiting the job market as more and more firms are hiring," he added.
The new orders index climbed to 63.7 in May from 61.9 in April, primarily driven by strong domestic demand, according to the PMI report. It was the 14th consecutive month when new orders expanded.
The robust growth seen by manufacturers helped push the employment index to its highest reading since August 2005, signalling modest job creation across the economy.
The latest survey also showed five-year series highs in the backlogs of work index and stocks of raw materials, boosted by strong demand from both public and private sectors.
While figures point to a sharp improvement in business conditions, resulting price pressures might be a cause for concern as Asia's third-largest economy continues to battle stubbornly high inflation.
Wholesale prices, the Reserve Bank of India's most closely watched gauge of inflation, eased slightly in April to 9.6 percent, but are not far from 10.1 percent seen in February, which was the highest since October 2008.
Latest food and fuel inflation, however, has remained in the double digits.
"Price pressures remain elevated and are of concern. However, the recent readings point to a stabilization of price pressures, with both the input and the output price indices easing back a little in May," Neumann said.
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