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04. September 2007

India's manufacturing growth seen at a 9-month high in August

Manufacturing activity in the country accelerated in August with the sector expanding at its fastest pace in nine months, amidst strong demand a revival of inflationary pressures, the ABN AMRO Bank purchasing managers' index (PMI) showed.

August saw the strongest improvement in Indian manufacturing operations since November when it rose to a seasonally adjusted 57.9 from 52.9 in July, when it touched its lowest in 28 months.

The PMI, compiled by UK-based NTC research and sponsored by the Dutch Bank, tracks changes in manufacturing business conditions across 500 companies each month on output, new orders, employment and prices.

A reading above 50.0 signals expansion while readings below 50.0 suggests contraction.

The PMI hit a peak of 59.3 in October 2006 but has been declining since then as the Reserve Bank tightened its monetary policy to cool prices in Asia's third-largest economy, which grew at an annual 9.3 per cent in the April-June quarter.

The RBI also raised its key short-term lending rate five times since June 2006 and increased banks' reserve requirements by 200 basis points since December.

In its annual report last week the RBI said inflationary pressures could persist due to high global commodity prices and capital flows, even though inflation has eased to just below four per cent annually in August from a two-year high of 6.69 per cent in January.

The new orders index rose sharply to 64.8 in August from 55.7 in July. The new export orders index climbed to 54.9 in August from 51.3 in July. The output index rose to 60.7 in August, a nine-month high.

Input price inflation accelerated sharply in August due to strong demand for raw materials including paper, metals and food items, but companies were able to pass on higher manufacturing cost to consumers, the study said.

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