Manufacturing sector contracts for second straight month in Sept: HSBC

India's manufacturing sector activity contracted for the second consecutive month in September as both output and new orders witnessed a decline.

The HSBC India Manufacturing Purchasing Managers' Index (PMI) for the manufacturing industry stood at 49.6 in September, higher from 48.5 in August, but remained below the crucial 50-mark (indicating contraction) for the second consecutive month.

The overall rate of contraction had slipped sub-50 reading in August for the first time since March 2009.

"Manufacturing activity continued to shrink in September, albeit at a slower pace. Order flows remained weak, especially export orders, and employment fell," HSBC Chief Economist for India and ASEAN Leif Eskesen said.

Faced with fewer projects, companies reduced their workforce numbers for the first time since February 2012.

"Reflective of a further reduction in new order levels, Indian manufacturers cut their staffing levels in September," HSBC said, adding that "the latest fall ended a period of job creation that had lasted for one and-a-half years".

Although new orders fell at a slower and marginal pace, the contraction of export business was very significant.

According to HSBC, a depreciation of the rupee versus the US dollar had resulted in higher prices paid for inputs and limited firms' ability to price "competitively".

"Despite the weak growth readings, the build-up in underlying inflation pressures suggests that the RBI has to keep its inflation guards up," Eskesen said.

Driven by costlier food items, wholesale price inflation rose to a six-month high of 6.1 per cent in August.

The Reserve Bank of India, in its September 20 policy review, had unexpectedly raised the policy rate by 0.25 per cent as it kept its focus on controlling inflation.

The findings of the survey comes at a time when the country is battling slower growth rate, wider current account deficit (CAD) and a battered currency.

According to official data, high imports of gold and oil pushed CAD to 4.9 per cent of GDP at $21.8 billion in the April-June quarter of the current financial year.

with inputs from PTI