India manufacturing activity at 4-month high in July on strong overseas demand

India’s manufacturing activity grew at the fastest pace in the four months ended July, following strong overseas demand, as export orders jumped; however, prices remained muted. This provided impetus to the Reserve Bank of India to ease in its upcoming monetary policy meet, if needed.

The Nikkei/Markit Manufacturing Purchasing Managers' Index (PMI) rose to 51.8 in July from June's 51.7, marking its seventh month above the 50 level that separates growth from contraction. The output and new orders sub-indexes both rose to their highest since March.

Moreover, among new orders, consumer goods saw the strongest pace of expansion, while export orders rose at the fastest pace since January, driven largely by depreciation in the domestic currency. The survey also showed that input costs rose at a modest and slower pace, although improving demand meant firms were able to pass on some of that burden.

"With inflation rates remaining lower than their respective long-run averages, it wouldn't be surprising to see the Reserve Bank of India loosening monetary policy at its August meeting in an effort to encourage investment," Reuters reported, citing Pollyanna De Lima, Economist, Markit.

In addition, a majority of economists polled by Reuters last month predicted that a rate cut is pending between October and December. Following this, much focus will remain on the Goods and Services Tax (GST) that is pending in the monsoon parliament.

Meanwhile, consumer inflation in India rose to 5.77 percent in June, above the RBI's March 2017 target of 5 percent, although it could cool if above-average monsoon rains help counter rising food prices.