India's manufacturing index eases in Sept; RBI may cut rates: Survey

The growth of India's manufacturing industry eased in September with decline in growth of new orders, while weak inflationary rates may prompt RBI to cut rates in the upcoming monetary policy meet, according to a latest survey.

The Nikkei India Manufacturing Purchasing Managers' Index (PMI)-an indicator of manufacturing performance- fell to 52.1 in September from 52.6 in August, indicating that growth has lost some momentum. 

Commenting on the Indian Manufacturing PMI survey, IHS Markit economist and author of the report Pollyanna De Lima said, “The Indian manufacturing industry lost momentum in September, as growth of new orders eased from August’s 20-month high."

According to the survey, a factor that has contributed to the slowdown in the manufacturing sector was a softer increase in new business inflows.

The country's manufacturing index has remained above the crucial 50.0 threshold for the ninth consecutive month indicating a further improvement in the sector, it further said.

However, the rate of expansion has eased since August and was relatively modest. A reading above 50 points to expansion and one below 50 means contraction. 

"Output is still rising at a decent clip and the sector looks likely to have delivered a stronger contribution to gross domestic product (GDP) growth in the second quarter (Q2) of FY17, with the quarterly reading for the PMI’s Output Index up from 51.4 during April-June to 53.6," Lima said. 

Besides, foreign new orders for Indian-manufactured goods expanded markedly in September, and at the quickest rate in 14 months.

Greater workplace activity led companies to scale up their buying levels and hire additional workers in September but job creations overall took place on marginal basis during the month, it noted.

As far as prices of manufacturing goods are concerned, the survey said that the average purchase costs increased at a faster pace in September, but one that was weak compared to its long-run trend.

"Although inflation rates edged higher, these remain weak by historical standards and indicate that we may still see the Reserve Bank of India (RBI) loosening monetary policy in 2016.”

RBI will announce its bi-monthly monetary policy on Tuesday. 

The central bank's monetary policy meet will be viewed as significant one by investors as it will be the first monetary policy to be held by the new governor Urjit Patel and the newly formed monetary policy committee (MPC), that will decide on interest rates going forward.