India's manufacturing growth drops in April

Mumbai: India's manufacturing expanded at a slower pace for the second month in a row following a drop in new orders and output, backing further away from a 20-month-high hit in February, a survey showed on Monday.

The HSBC Markit Purchasing Managers' Index, based on a survey of 500 companies, fell to 57.2 in April from 57.8 in March. A figure above 50 means activity is expanding and it has been above that level for 13 months.

The data still signalled significant strength in India's manufacturing sector, underscoring the double-digit gains in official industrial output figures in recent months, the survey said.

"Although this slip indicates that operating conditions improved at a weaker rate during the latest survey period, the latest reading still signalled a considerable strengthening in the health of the industry," survey compiler Markit said.

"Prices charged for Indian manufacturers rose at a marked pace during April, as firms responded to further growth in their cost burdens in an attempt to defend profit margins."

Output and new orders indexes remained above 60 and employment showed modest growth in April after stagnating the month before, supported by greater production requirements and accelerating economic growth.

The output price index rose for a second month in a row to 55.8 from 54.6. It has risen nearly four points since February.

The backlogs of work index spiked to an all-time high thanks to new orders, delays in delivery times and power cuts, suggesting inflation pressures may mount further.

India's wholesale price index inflation hit a 17-month-high of 9.9 percent in March prompting the central bank to raise its key interest rates and bank reserve requirements by 25 basis point each in April.

Top policymakers have indicated that inflationary pressures will ease in the coming months but there are many sceptics.

"In our view, India is in for a protracted period of rate hikes, the extent of which will surprise most forecasters," said Robert Prior-Wandesforde, senior Asian economist at HSBC.

Analysts polled by Reuters expect the Reserve Bank of India to tighten policy further, raising the repo rate , at which the central bank lends to banks, by 100 basis points to 6.0 percent by the end of December from the current 5 percent.