Indian manufacturing revives after four-month slump on new orders

India has been struggling with slowing economic growth, high inflation levels and a weak currency. Above, a worker welds metal in New Delhi. Prashanth Vishwanathan / Bloomberg News

MUMBAI // India's manufacturing activity returned to growth last month for the first time in four months, a further sign of economic improvement.

The data followed a positive surprise on Friday when the latest GDP reading showed a slight rebound.

The figures lifted the rupee to a two-week high yesterday, touching 61.96 against the US dollar after closing at 62.44 against the greenback on Sunday.

The benchmark S&P Bombay Stock Exchange Sensex rose 0.51 per cent yesterday to close at 20,898.01.

The HSBC purchasing managers’ index for India, compiled by Markit, climbed to 51.3 last month from 49.6 in October. A reading above 50 indicates expansion, while a reading below 50 shows contraction. This was the first reading above 50 since July, HSBC said, with manufacturing activity boosted by incoming new work.

“Manufacturing activity picked up, led by a rise in new domestic orders, which helped pull up output growth,” said Leif Eskesen, HSBC’s chief economist for India and Asean.

“Encouragingly, input and output price inflation eased, which, if sustained, could imply that the RBI [Reserve Bank of India] is getting closer to the end of its tightening cycle, although it may still need to notch [interest] rates up a bit further.”

India has been struggling with slowing economic growth, high inflation levels and a weak currency.

The Indian central bank raised interest rates in October for the second consecutive month to fight uncomfortably high inflation.

National GDP for the July to September quarter grew at a better than expected 4.8 per cent, official data released on Friday showed. That was an improvement from growth of 4.4 per cent in the previous quarter. India is believed to need economic growth of about 8 per cent to create jobs for its population and help lift millions of out of poverty. Its GDP growth slowed to a decade-low of 5 per cent in the last financial year.

Some economists say that the economic slowdown seems to be bottoming out, although they also say that a sustained recovery will be difficult over the coming months because of factors, including the general elections (which are expected by May), that are hampering investment.

Miguel Chanco, the India economist at Capital Economics, said: “Looking ahead, we believe that the economy’s road to recovery will be slow and bumpy. The main factor holding back the domestic economy is the poor investment environment. A whole host of investment projects are currently stalled because of bureaucratic issues.”