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Factory PMI Up But Remains Weak As Orders Shrink

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Indian factory activity remained weak in June as output contracted for the second month running and order books shrank for the first time in over four years, a survey showed on 1 July.

The HSBC Manufacturing Purchasing Managers' Index (PMI), compiled by Markit, edged up to 50.3 in June from 50.1 in May.

The index, which gauges business activity in Indian factories but not its utilities, has been flirting with the 50 mark that separates growth from contraction for two months but has held above it for over four years.

"Manufacturing activity was broadly flat in June. Output continued to contract due to power shortages, albeit less so than last month. Moreover, new orders contracted led by weaker domestic demand," said Leif Eskesen, a chief economist at HSBC.

While export orders came in at a faster pace last month, domestic demand took a hit from the faltering economy.

A sub-index measuring overall new orders fell to 49.7, from 50.5 in May, below the watershed level for the first time since March 2009.

Years of reckless spending, a long struggle containing inflation, high interest rates, policy paralysis and fragile global demand have put India back in a rut of slowing growth.

The economy grew at its slowest pace in a decade in the fiscal year that ended in March and economic data since then has underwhelmed suggesting no relief from the current slowdown.

The 5.0 per cent growth rate in the previous fiscal year is a far cry from the near double-digit rate recorded until two years ago when India was widely expected to be one of the main drivers of a global economic recovery.

The latest PMI showed inflationary pressures, which eased in the previous few months, have started to pick up again with input and output costs both rising in June.

"Despite the moderate pace of growth, output prices picked up slightly and input prices rose more notably, partly in response to the depreciation of rupee," Eskesen said.

The Indian rupee tumbled to new record lows last week, making it emerging Asia's worst performing currency so far this year, after remarks from the US Federal Reserve Chairman Ben Bernanke on a rollback of stimulus prompted a sell-off in emerging market assets and capital outflows.