India's January 2016 headline manufacturing PMI rose to 51.1 from December 2015's 49.1. However, the headline PMI reading continues to be weak according to past standards. India's local industry continues to face considerable structural challenges. Most of the rise in the PMI is likely to be due to increased output and new orders readings. The January reading is on par with growth in industrial production of 1.5% y/y, which is still slower than the 6% y/y growth over a three-month average indicated in the recent data.

However, in spite of a rise in January, the sector faces considerable challenges. Indeed, theoretically, manufacturers should gain from the RBI's policy rate cuts by 125bp in the past 12 months; however, worries regarding current levels of bad debt in the system indicate that commercial banks have been quite slow in lowering lending rates and boosting credit growth.

With the stalling of government's reform agenda, manufacturers' prospects have been dampened. On the top of the priorities list is pushing through measures to ease laws regarding land acquisition and simplify the domestic tax system. However, with the parliament being in a standstill in its recent sitting, hopes for reforms in both these areas have experience another blow. With this, a continuous rise in manufacturing looks unlikely.