Indias factory growth accelerated in February, inflation remains a concern

India's factory activity growth accelerated in February as the threat from a third COVID-19 wave eased, a private survey showed. The pricing constraints eased, leading to increased demand and business expectations, as per Reuters reported.

The study was done before Russia's invasion of Ukraine. This has resulted in an immediate increase in oil prices. Because India is the world's third-largest oil importer, the crisis will exacerbate price pressures and negatively impact consumer morale.

IHS Markit's Manufacturing Purchasing Managers' Index rose to 54.9 in February from 54.0 in January, according to data gathered by IHS Markit between February 10 and 22.

For the eighth month in a row, the February figure beat estimates of 54.3 in a Reuters survey, and it was over the 50-point that separates expansion from contraction.

"For now, India`s manufacturing sector has weathered the storm of the Omicron variant, undoubtedly supported by the relatively high inoculation rate," noted Shreeya Patel, an economist at IHS Markit.

In February, output and new orders increased for the eighth month in a row, driven by the consumer products sector, which saw increased sales and favourable demand, Reuters said.

International demand for Indian produced goods increased slightly, reaching a three-month high.

On prospects of a return to normalcy and expansion plans, business expectations for the next 12 months increased, and the index surged to a four-month high.

Firms, on the other hand, continued to shed positions for a third month, but at a slower pace than the previous two.

According to Reuters, the input prices index in February fell to a six-month low, while raw material costs rose for the 19th month, owing to increasing metals, cotton, chemicals, and rubber prices. Some of the greater costs were passed on to customers by factories.

"There were, however, some key concerns that continued to threaten growth. Most prominently, cost pressures remained elevated as a result of shortages while delivery times lengthened once again," added Patel.

Last quarter, India's economy grew by 5.4 percent, slower than the previous two quarters and below the 6.0 percent growth forecast in a Reuters poll.

Increased oil prices as a result of the Russia-Ukraine situation are expected to have a significant impact on inflation and the rupee, as well as increasing India's current account deficit, reducing growth even further, as per Reuters mentioned.

The Reserve Bank of India is anticipated to boost interest rates next quarter to battle inflation, but that might change if the situation worsens.