By Shaloo Shrivastava
BENGALURU, March 1 (Reuters) - India's manufacturing
sector expanded at the slowest pace in four months in February
but remained relatively strong amid buoyant domestic demand,
despite higher inflationary pressures, a private survey showed
on Wednesday.
Rising borrowing costs and weakness in manufacturing have
slowed the Indian economy. It expanded 4.4% last quarter
year-on-year from 6.3% in the previous quarter, data showed on
Tuesday, slower than the 4.6% predicted in a Reuters poll.
The manufacturing sector shrank 1.1% in the quarter
year-on-year, the second straight contraction reflecting a
weakness in exports.
The Manufacturing Purchasing Managers' Index ,
compiled by S&P Global dipped to 55.3 last month from January's
55.4, but it was higher than a Reuters poll expectation for 54.3
and still well above the 50-mark separating expansion from
contraction for a 20th straight month.
"Companies were confident in the resiliency of demand and
continued to add to their inventories by purchasing additional
inputs," said Pollyanna De Lima, economics associate director at
S&P Global Market Intelligence.
New orders and output rose sharply, indicating strong
underlying domestic demand. But an index measuring international
demand eased to its lowest in an 11-month expansion streak in
the wake of faltering global demand.
Input cost inflation continued to accelerate with firms
mentioning higher prices for electronic components, energy,
foodstuff, metals and textiles. However, it stayed below the
long-run average.
But a vast majority of firms decided to not yet pass on the
extra costs to clients in an attempt to boost sales.
If they do opt to pass the burden on, then inflation, which
was above the RBI's inflation target of 2%-6% for almost all of
2022, could remain elevated and push the Reserve Bank of India
(RBI) to tighten further.
The RBI has already hiked the repo rate by 250 basis points
since May last year and had been expected to pause after its
February meeting.
But inflation rose to 6.52% in January and the repo rate
will now peak at 6.75% in April from 6.50% currently, according
to a Reuters poll taken last week.
Nevertheless, the business expectations sub-index showed an
uptick in confidence regarding the year-ahead outlook on strong
demand predictions.
Firms were reluctant to hire, though, and job creation was
only marginally up.
"Job creation failed to gain meaningful traction, however,
as firms reportedly had sufficient staff to cope with current
requirements," added De Lima.
(Reporting by Shaloo Shrivastava; Editing by Kim Coghill)
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