Factory output expands at fastest pace in 2 years in December

The country's manufacturing activity expanded at its fastest pace in two years in December as new orders flooded in and factories kept price increases to a minimum, a business survey showed on Friday.

The HSBC Manufacturing Purchasing Managers' Index (PMI) - a composite gauge, compiled by Markit, designed to give a single-figure snapshot of manufacturing business conditions - rose to 54.5 in December from 53.3, its highest since end-2012 and its 14th straight month above the 50-mark that separates growth from contraction.

The survey also showed input prices slumped to a near six-year low as oil prices tumbled.

Strong new business reinforces Finance Minister Arun Jaitley's view that the economy will grow "much better" in the 2015-16 financial year, while weaker inflation gives the Reserve Bank of India (RBI) more room to cut interest rates as expected in 2015.

In November, the country's annual consumer price inflation fell to 4.38 per cent, well below the 8 per cent-level which the RBI had hoped to achieve by the end of 2014 and the lowest since the government started releasing the data in 2012.

"With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015," said Pranjul Bhandari, chief India economist at HSBC.

A Reuters poll predicted the central bank would start cutting its short-term lending (repo) rate from 8 per cent in the second quarter.

But despite surging factory production, driven by improved business conditions and strong domestic and foreign demand, factories cut headcount at the steepest rate for nearly three years.

An employment sub-index slipped to 49.6 from November's 50.2.

(Reuters)