New Delhi: India's manufacturing sector witnessed the third consecutive month of decline in March as output and new order growth weakened amid power cuts leading to capacity constraints, an HSBC survey said.
The HSBC India Manufacturing Purchasing Managers' Index (PMI) - a measure of factory production - stood at 54.7 in March, down from 56.6 in February. In January, the PMI stood at 57.5.
A reading above 50 shows that the sector is growing, while a reading below 50 means the segment is contracting.
"Activity in the manufacturing sector expanded at a slower pace in March led by a moderation in output and order growth, although export orders accelerated," HSBC Chief Economist for India & ASEAN Leif Eskesen said.
The report further said Indian manufacturers reported a marked rise in new business received during March. However, the rate of expansion was the weakest in three months.
"Anecdotal evidence suggested that power cuts and raw material shortages had limited manufacturers' ability to take on new business and customers' propensity to place orders – despite a general improvement in demand," HSBC said.
Eskesen said that while inflation of output prices eased, a further rise in input price inflation suggests it could pick up again as cost pressures are passed on to customers.
"These numbers suggest that upside risk to inflation remain and that the RBI's easing cycle, in terms of timing and magnitude, depends on the extent to which these risks materialise," Eskesen said.
Wholesale price-based inflation, which remained high during most of 2011, has started showing signs of moderation but rose to 6.95 percent in February, against 6.55 percent in the previous month.
RBI left all key policy rates unchanged during its March 16 review of the third quarter policy, citing persistence of inflation risks due to rising global crude oil prices, a weak fiscal position and a vulnerable exchange rate.
Meanwhile, there was a marginal rise of employment in the Indian manufacturing sector in March largely owing to higher output requirements.
Job creation has now been registered in three of the last four months, HSBC said.