India’s production up, inflation a risk

MUMBAI - Agence France-Presse

An Indian employee works on Vespa scooters at its manufacturing unit in Baramati. AFP photo

India’s factory sector picked up slightly in April, powered by new orders, but rising prices highlighted ongoing inflation risks, a business survey showed yesterday.

The HSBC India Manufacturing Purchasing Managers’ Index (PMI), a key measure of factory output, edged up to 54.9 in April from 54.7 in March, led by new orders.

A reading above 50 points to expansion while a reading below 50 suggests contraction.

“Business conditions seem to have improved a bit and the increase in order flows from domestic and overseas customers suggest the pace of growth could hold up in coming months,” said HSBC’s chief India economist Leif Eskesen. But “inflation accelerated with both output and input prices rising faster. This suggests that upside risks to inflation remain,” he added.

The figures suggested that the central bank’s recent half-point rate cut “could turn out to have been premature and too aggressive,” he said.

The Reserve Bank of India reduced rates last month, its first such move in three years, after hiking borrowing costs 13 times since March 2010 to curb stubbornly high prices.

Inflation, which was nudging double digits for most of 2011, has now fallen to just under seven percent but the rate rises, along with a sluggish global economy, dragged on gross domestic product growth.

Asia’s third-largest economy grew 6.9 percent in the fiscal year to March, the second lowest pace in a decade.

Last week, Standard & Poor’s downgraded India’s credit outlook to negative, saying the slowing economy and swelling fiscal deficit was putting the country’s prized investment-grade rating at risk.