Making a case for an imminent hike in key policy rates by the central bank, India?s factory output expanded at its fastest pace in more than twenty six months in May, a survey showed on Tuesday. The acceleration in growth on the back of steady growth in output, new orders and employment heightened the chance of the Indian economy achieving an 8.5% growth in the current financial year that started in April.
The HSBC Markit Purchasing Manager?s Index (PMI), based on a survey of 500 firms, surged to a 27-month high of 59 in May from 57.2 in April. This is the 14th consecutive month in which the PMI reading is above the 50 mark, that divides growth from contraction. The rate of growth had slowed down in March and April, that made economists skeptic whether the growth momentum has peaked out.
?The Indian economy is hardly pausing for breath,? said Frederic Neumann, co-head of Asia Economics Research at HSBC. ?Output growth remains at a robust pace and new orders continue to pour in benefiting the job markets too as more and more firms are hiring,? he added.
The growth momentum that refuses to slow down pushed the employment sub-index in the PMI to its highest reading since August 2005, signaling job creation across the economy. Neumann pointed out in the report that,? recent readings in inflation point to stabilisation of price pressures, with both input and the output price indices easing back a little in May.? Headline inflation in India eased slightly in April to 9.6% after touching 10.1% In February, the highest since April 2008. Central bank governor Duvvuri Subbarao told media in Mumbai that inflation is out of RBI?s comfort zone and it has not peaked out so far.?We would look into inflation concerns along with growth while formulating the monetary policy,? Subbarao added.
The central bank officials had said in May that the normalisation of monetary policy will be at a moderate pace because of the risks posed to global growth by the euro zone crisis.?We would have seen another 25 basis points hike in May if it wasn?t for the uncertainties posed by the sovereign default crisis,? Jehangir Aziz, chief economist at global financial services firm J P Morgan Chase told FE, adding that ?another 100 basis points hike in key policy rates will be seen this year.?
With the Indian economy that has been reeling under global financial melt down showing signs of coming back to the high growth trajectory the central bank has already hiked the key interest rates twice by 25 basis points each. Data released by the government on Monday had showed that Asia?s third largest economy expanded by 8.6% in the three months leading to March.