New Delhi: Manufacturing sector returned to growth in January, expanding at a four-month high pace on rise in new business orders, a monthly survey showed Monday, adding to the expectations of RBI keeping rates unchanged tomorrow.
The return to growth follows the first contraction in factory output in over two years in the previous month.
While Chennai floods had taken a toll on the manufacturing sector in December, the sector saw production as well as new orders -- both domestic and export -- surge in January, as per the monthly Purchasing Managers Index (PMI) survey conducted by Nikkei and Markit.
The Nikkei India Manufacturing PMI, a composite monthly indicator of manufacturing performance, stood at 51.1 in January, up from 49.1 in December. A figure above 50 represents expansion while a reading below this level means contraction.
"The opening month of 2016 saw a rebound in new business - from both domestic and external clients – leading manufacturers in India to scale up output following a short-lived downturn recorded in December," Pollyanna De Lima, Economist at Markit and author of the report said.
Though the trends in the growth rates are relatively weak in comparison with the long-run series averages, January's PMI data paints a brighter picture of the Indian economy, Lima said.
On inflation, the report said price pressure remained on the upside in January, with input costs and output charges both rising during the month.
"Although RBI is likely to continue its monetary policy loosening cycle in 2016, February's meeting will probably see the repo rate remaining unchanged at 6.75 percent as the central bank will remain wary of inflationary pressures building in the country," Lima said.
According to official figures, WPI as well as retail inflation has been on a rising trend. In December, WPI-based inflation stood at (-)0.73 percent, while retail inflation was 5.61 percent.
The apex bank will announce its sixth bimonthly Monetary Policy Review of the fiscal tomorrow, the last before presentation of the Union Budget. However, experts believe RBI is unlikely to cut rates till the Budget.
The government recently lowered its economic growth forecast for 2015-16 to 7-7.5 percent from 8.1-8.5 percent.