Manufacturing rises to four-month high in January

Firms hired additional hands to keep up with the production demand

After contracting in the previous month, manufacturing registered a four-month high growth in January following inflows of new business from both domestic and export sources, showed a widely tracked Nikkei purchasing managers'index (PMI) survey. However, investment goods output and new orders fell which may have impact on future growth of manufacturing.

However, inflationary pressures remained on upside because of which a commentator associated with PMI does not expect the Reserve Bank of India to cut the policy rate on Tuesday.

Firms hired additional hands to keep up with the production demand.

PMI rose  to 51.1 points  in January from 49.1 in December. A reading below  50 denotes contraction and one above  that is expansion.

"Alongside a resumption of output at some firms impacted by December’s flooding, manufacturers also benefited from rising inflows of new business from domestic and export clients," said Markit Economics, a compiler of PMI data.

Although the rate of expansion was only moderate, it was the sharpest signalled for four months, it added.

Both levels of production and total new business registered mild increases following contractions in December.

The consumer goods sub-sector remained the principal growth engine at the start of the year, seeing substantial expansions of both output and new orders. In contract, producers of investment goods saw output and new orders  fall, while production volumes  stagnated in the intermediate goods category.

The trend in new export order inflows strengthened during January, amid reports from companies of improved sales demand. "The level of income new export business has now risen in each of the past 28 months," Markit said.

It is here that official figures show just opposite picture. Merchandise exports contracted for 13 months  in a row till December, 2015.

Also, while PMI declined to 50.7 points in October from 51.2 points in the previous month, official figures showed that manufacturing was up almost 10 per cent in October. As such, the PMI numbers should be cautiously interpreted.

According to Markit, January saw further mild job creation in the Indian manufacturing sector with headcounts added to across the consumer, intermediate and investment goods categories.

However, January's increase in employment was insufficient to reduce the pressure on manufacturers'capacity.

Price pressures remained on the upside at the start of 2016, with input costs and output charges both rising during January.

Pollyanna De Lima said," Although the RBI is likely to continue its monetary policy loosening cycle in 2016, February's meeting will probably see the repo rate remain unchanged at 6.75 per cent as the central bank will remain wary of inflationary pressures building in the country."