Workers polish diamonds at a factory in Ahmedabad, India
Mumbai - AFP
India's factory output in February grew at its slowest pace in five months as business demands remained dim, a survey showed on Monday, suggesting strong government steps were needed to reignite growth.
Banking giant HSBC's report comes two days after the right-wing government unveiled its first full-year budget, which analysts said skipped big reforms but promised to help the economy "fly" by spending $11.3 billion in infrastructure and tightening expenditure.
The HSBC survey compiled by Markit showed the purchasing manager's index (PMI) for India's manufacturing sector fell to 51.2 points in February from 52.9 in January, its lowest dip since September last year.
The index had touched a two-year high of 54.5 in December.
"Manufacturing growth in India lost momentum in February, with output and new orders expanding at softer rates than those seen in the past four months," said Pollyanna De Lima, an economist at Markit.
But De Lima was optimistic, saying that low inflation, higher exports and a rise in foreign orders "at a strong and accelerated pace, while the PMI remained in positive territory... brighten the prospects for a rebound in output and employment in coming months".
Analysts suggest that the government's role in boosting industrial activity through continued reforms, along with monetary easing from the central bank to cut funding costs, will be crucial in the months ahead.
The Reserve Bank of India (RBI), however, refrained from lowering rates further at its policy meeting last month, saying it was waiting to see more signs that inflation was cooling and the government would deliver "high quality fiscal consolidation" in the budget.
Finance Minister Arun Jaitley said the government would meet the "challenging" aim of keeping India's fiscal deficit at 4.1 percent of the gross domestic product, but said he would need three years instead of two to narrow the gap to three percent.