India's Manufacturing Growth Hits 29-month Low

Slowdown due to monetary tightening, analyst says.

Hit by a string of interest rate hikes and a plunge in export orders, growth in India's manufacturing sector skidded to a 29-month low in August. The widely watched HSBC India Manufacturing PMI, or purchasing managers' index, fell for a fourth straight month to 52.6, a shade below the previous low of 53.2 registered during the global financial crisis in April 2009.

"The moderation in growth is clearly not just a blip and is set to continue over the next several months," said HSBC chief India economist Leif Eskesen. "The driver of this is the lagged effect of monetary tightening."

The figures were seen as likely to fuel concerns that Asia's third-largest economy may be headed for a harder-than-expected landing as India's central bank keeps up efforts to rein in soaring prices.

Economists said that they still expected India's central bank to raise interest rates this month for the 12th time since March 2010 unless the global situation takes another turn for the worse.

"Of course, if global economic headwinds prove more persistent and strengthen further, the Reserve Bank of India could justifiably feel tempted to press the 'pause' button," Eskesen said.

India's food inflation is running at 10.05% year-on-year and overall inflation is stubbornly above 9%, the highest among major economies globally.

"Price pressures continue to build as higher input costs, without too much trouble, are passed on to final sticker prices," Eskesen said.

The index's forward-looking measures for new orders weakened as did prospects for employment and output, pointing to cooling growth in coming months.

The drop in the new export orders index has been especially sharp -- it has slid to 45 from 56 in three months. There has been "a collapse in export orders," said Credit Suisse economist Devika Mehndiratta.

Copyright Agence France-Presse, 2011

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