India's manufacturing growth slips marginally in May

New Delhi: India's manufacturing sector slipped marginally in May as the marked growth in output was impacted by slowing domestic order book, an HSBC survey said.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - slipped slightly to 54.8 in May, from 54.9 in April.

A reading above 50 shows that the sector is growing. Below 50, it indicates that the segment is contracting.

"Activity in the manufacturing sector kept up the pace in May with output, quantity of purchases and employment expanding at a faster pace. New orders decelerated slightly led by domestic orders," said Leif Eskesen, Chief Economist for India & ASEAN at HSBC.

India's economic growth rate slowed to a 9-year low in March quarter at 5.3 per cent, and 6.5 per cent for the entire 2011-12 fiscal.

The decline in growth was witnessed in almost all segments of the economy, including agriculture, manufacturing, mining and construction.

At 6.5 per cent, the GDP growth in 2011-12 was lower than that 6.7 percent seen in 2008-09 amid the global financial crisis.

Eskesen cautioned that going ahead a slight moderation in output growth is likely.

"Input and output prices rose at a slower pace than in April, but inflation is still high by historical standards and capacity remains tight with backlogs of work rising and supplier delivery times lengthening," Eskesen said.

New orders at Indian manufacturers increased sharply again in May but the rate of expansion was slightly weaker than in April as power cuts, had hampered operations, preventing a faster rise in output.

"Power shortages, as well as insufficient employee numbers, led to a marked accumulation of backlogs of work that was only fractionally weaker than March's series record," the survey said.

Meanwhile, firms raised charges at one of the fastest rates in the series history, as Indian manufacturers passed on higher input costs to their clients in May.

According to HSBC output prices rose for the thirty-third month in a row, and at one of the fastest rates in the history of the series.

"In light of these numbers, the RBI does not have a strong case for further rate cuts, which if implemented could add to lingering inflation risks," Eskesen said.

The Reserve Bank is scheduled to announce mid-quarter credit policy on June 18.