The Reserve Bank of India kept key policy rates unchanged at 7.75% in line with market expectations. While inflation has eased, the RBI is awaiting more information on the fiscal outlook and evidence that disinflation is sustainable. The RBI reduced the statutory liquidity ratio for banks to improve liquidity and provide more credit availability. India's GDP grew by 6.9% in FY14 according to revised estimates, and is projected to grow 7.4% in FY15. Industrial production growth slowed to 1.7% in December 2014, indicating weaker demand despite recent GDP growth figures.

1. Economic Research Report
February 2015
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RBI keeps Key Policy Rates Unchanged
In line with the market expectations, the Reserve Bank of India (RBI), in its sixth Bi-Monthly
Monetary Policy Statement, decided to keep key policy rate unchanged at 7.75%. After
cutting the repo rate by 25 bps in January 2015, the RBI maintained the status quo on rates
as it is awaiting further information on the fiscal outlook and evidence that the moderation in
inflation is sustainable.
RBI’s Policy Decision
• Repo rate under the Liquidity Adjustment Facility (LAF) left unchanged at 7.75%, thus
reverse repo rate stands automatically at 6.75%
• Cash Reserve Ratio (CRR) retained at 4.00% of Net Demand and Time Liabilities (NDTL)
of the banking system
• Statutory Liquidity Ratio (SLR) of scheduled commercial banks reduced by 50 basis points
from 22.0% to 21.5% of their NDTL with effect from the fortnight beginning February 7,
2015
• Marginal Standing Facility (MSF) rate, determined at a spread of 100 basis points above
repo rate, stands at 8.75%, while bank rate also remains at 8.75%
Liquidity Front
• Replaced the Export Credit
Refinance (ECR) facility with the
provision of system level liquidity
with effect from February 7, 2015
• Continue to provide liquidity
under overnight repos at 0.25%
of NDTL at the LAF repo rate and
under the 7-day, 14-day term
repos of up to 0.75% of NDTL of
the banking system through
auctions
• Continue with daily variable rate
term repo and reverse repo
auctions to smooth liquidity
8.00% 8.00% 8.00%
8.00% 8.00% 8.00%
7.75%
7.75%
7.00%
7.00% 7.00% 7.00% 7.00%
7.00%
6.75%6.75%
4% 4% 4% 4% 4% 4% 4% 4%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
8.00%
8.50%
28/01/2014
1/4/2014
3/6/2014
5/8/2014
30/9/2014
2/12/2014
15/01/2015
3/2/2015
Repo Rate Reverse Repo Rate CRR
RBI's Monetary Policy Stance
Economic Research
February 2015
Source: RBI

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February 2015
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Policy Backdrop
Keeping the inflation battle at the top of agenda, the RBI notified that there have been no
substantial new developments on the disinflationary process or on the fiscal outlook since
January 15 and therefore it is appropriate to maintain the current interest rate stance.
Though inflation has eased significantly during June-November this fiscal owing to the high
base effect prevalent from last year, the upturn in December turned out to be muted.
However, the unlikely possibility of significant fiscal slippage, uncertainty on the spatial and
temporal distribution of the monsoon during 2015 and also the low probability but highly
influential risks of reversal of international crude prices due to geo-political events are the
key upside risks to inflation. We expect that RBI’s inflation target of 6% by January 2016 is
likely to be achieved and Apex Bank to resume cutting the Repo rate after the presentation
of Union Budget 2015-16.
Reduction in Statutory Liquidity Ratio to improve Liquidity
The RBI is continued to provide liquidity to banking system to facilitate more credit
availability for the productive sectors. The reduction in SLR by 50 bps to 21.5% of NDTL is
perceived as a positive move as it will provide additional liquidity to banks which were on the
threshold of SLR ratio of 22% and required funds for providing credit. With this reduction, the
RBI plans to move the SLR to 20-20.5% mark in a phased manner. Presently, banks are
making more investments due to lack of viable lending opportunities and thus the move will
also benefit banking industry once the credit starts picking up.
RBI Retains FY15 Economic Growth Projection at 5.5%
The Central Bank expects a modest improvement in Indian economic growth. Conditions for
growth are gradually improving in India with declining input cost pressures, supportive
monetary conditions and recent measures relating to project approvals, land acquisition,
mining, and infrastructure. However, the overall impact on growth could be partially offset by
the weaker global growth outlook and short-run fiscal drag owing to likely compression in
plan expenditure in order to meet fiscal deficit target set for the current fiscal. The RBI has
retained the baseline projection for economic growth on 2004-05 base year at 5.5% for FY15
and expects 6.5% growth in FY16. Meanwhile, the RBI stressed that it may revise these
growth projections after analyzing the revised GDP data on the new base of 2011-12.
Economic Research
February 2015

3. Economic Research Report
February 2015
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Base Year for GDP Changed, Indian economy grows at 6.9% in FY14
The Central Statistical Organisation (CSO) has released revised Gross Domestic Number
(GDP) for the past two fiscals, taking 2011-12 as the base year. The revisions happen every
5 years and the earlier base year was 2004-05. With the new base year, FY13 GDP growth
has been revised to 5.1% from 4.5% earlier and the FY14 number has been revised to a
remarkable 6.9% as against 4.7% earlier. Ultimately, the latest revision on the basis Gross
Value Added (GVA) methodology has increased the size of Indian economy. The GDP, a
measure of the country’s total economic output, at constant (2011-12) prices is estimated at
99.2 lakh crore in FY14 as against 92.8 lakh crore in previous fiscal, showing growth of 6.9%
YoY.
Indian GDP likely to Grew by 7.4% in FY15: CSO
As per Advance Estimates released by the CSO, growth of India’s GDP at constant 2011-12
prices is estimated to accelerate to 7.4% in FY15 from 6.9% in FY14 boosted by an uptick in
Government and private consumption as well as investments. The Gross Value Added (GVA)
at basic prices (at constant 2011-12 prices) of industrial sector, having around 25% share in
Indian GDP, is estimated to increase to 5.9% in FY15 as against 4.5% in the previous fiscal.
Among industrial sector, electricity, gas, water supply and other utility services’ is expected to
emerge as a driving force in FY15 with an estimate growth of 9.6% over 4.8% in FY14.
Furthermore, manufacturing’ sub-sector, which accounts for around 75% of the industrial
sector, is likely to record a significant revival in FY15 with an estimated growth of 6.8% as
compared to 5.3% growth in FY14.
Construction activity is likely to improve modestly in FY15 at 4.5% relative to 2.5% in the
previous fiscal. However, mining and quarrying’ sub-sector is expected to witness low growth
at 2.3% in FY15 as compared to 5.4% in FY14. The service sector output is expected to
grow from 9.1% in FY14 to 10.6% in current fiscal mainly led by financial, real estate &
professional services sub-sector which is likely to grew by 13.7% in FY15 from 7.9% in
FY14. Trade, hotels, transport and communication services’ is projected to witness moderate
growth at 8.4% in FY15 over the growth of 11.1% in the previous fiscal. Meanwhile,
agriculture, forestry and fishing is forecasted as the weakest performing sector this fiscal
mainly on the back of subdued monsoon this year. The sector growth is likely to slow down
1.1% in FY15 over the 3.7% growth recorded in FY14.
Economic Research
February 2015

4. Economic Research Report
February 2015
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Indian Economy Grows at 7.5% in Q3FY15
India’s GDP at constant 2011-12 prices slowed down to 7.5% YoY to Rs 26.9 lakh crore in
Q3FY15 as against 8.2% growth in Q2FY15 and 6.4% growth in Q3FY14 driven by significant
expansion in service sector’s GVA to 13.5% in Q3FY15 from 9.1% in Q3FY14. Industrial sector
growth during the reported quarter declined to 3.9% from 5.0% in Q3FY14 as manufacturing,
mining & quarrying and construction sub-sectors witnessed lower growth on YoY basis.
However, the output of electricity, gas, water supply & other utility services expanded
significantly to 10.1% in Q3FY15 from 3.9% Q3FY14. Continuing the declining trend,
agricultural output contracted by 0.4% in Q3FY15 as compared to a growth of 3.8% in Q3FY14,
exerting pressure on the overall economic growth.
Rs Lakh Crore YoY Growth
Particulars FY13 FY14 FY15* FY14 FY15*
GDP at constant 2011-12 prices 92.8 99.2 106.6 6.9% 7.4%
Sector Wise (GVA at basic prices)
Agriculture, forestry and fishing 15.2 15.8 16.0 3.7% 1.1%
Industry
Mining and quarrying 2.6 2.8 2.8 5.4% 2.3%
Manufacturing 15.7 16.6 17.7 5.3% 6.8%
Electricity, gas, water supply and other utility
services 2.0 2.1 2.3 4.8% 9.6%
Construction 7.4 7.6 7.9 2.5% 4.5%
Services
Trade, repair, hotels and restaurants 15.5 17.2 18.7 11.1% 8.4%
Financial, real estate & professional
services 16.8 18.1 20.6 7.9% 13.7%
Public administration, defence and Other
Services 10.7 11.6 12.6 7.9% 9.0%
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Economic Research
February 2015
Source: MOSPI

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February 2015
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Capital Formation remains Subdued in Q3FY15
Gross Fixed Capital Formation (GFCF) growth declined further to 1.6% YoY in Q3FY15 from
7.7% in Q1FY15 and 2.8% in Q2FY15, revealing that investment activity in the economy
remains weak amid the higher-than-expected GDP growth at new 2011-12 base series. During
the last two fiscal investments in gross fixed capital in the economy remained subdued and in
current fiscal too it has not been showing any sign of revive. GFCF rose by a subdued 3.0%
and 3.9% as compared to GDP growth of 6.9% in FY14 and 7.4% in 9MFY15. GFCF as a
percentage of GDP at constant prices declined to 29.1% in Q3FY15 from 30.8% in Q3FY14.
Outlook
In order to meet the CSO’s Advance Estimate of 7.4% expansion for the ongoing fiscal, the
economy will have to register a growth of 7.5% in Q4FY15. Fall in global crude oil prices are
likely to boost disposable income which in turn will increase consumption demand. However,
enduring impact of the weak kharif harvest on rural incomes and continuing lag in rabi sowing
in FY15 as compared to previous fiscal remain key risks to growth. Overall, Indian economy
seems to have bottomed out and GDP growth is likely to surge in coming years.
Particulars Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15
Agriculture, Forestry & Fishing 3.8% 4.4% 3.5% 2.0% -0.4%
Industry 5.0% 4.3% 6.1% 6.0% 3.9%
Services 9.1% 6.4% 8.6% 10.1% 13.5%
GVA at Basic Prices 6.6% 5.3% 7.0% 7.8% 7.5%
Gross Fixed Capital Formation
(GFCF) 5.3% -1.4% 7.7% 2.8% 1.6%
GDP 6.4% 6.7% 6.5% 8.2% 7.5%
Growth in GVA at constant 2011-12 prices (YoY)
Economic Research
February 2015
Source: MOSPI

6. Economic Research Report
February 2015
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Industrial Production Slows Down in December 2014
Concern about industrial production continues in spite of higher than expected Q3FY15
growth of Indian economy after a revision in the definition of GDP and the base year for
calculating it. Dragged down by poor performance of mining and consumer durables sectors,
Indian Industrial Production (IIP) slowed down to 1.7% YoY in the month of December as
compared to 3.9% growth in the previous month. However, cumulative industrial production
during April-December FY15 grew by 2.1% as against 0.1% in the April-December FY14,
indicating that the economy is far better position now from previous fiscal.
Sectoral Performance:
Within the IIP, mining sector contracted 3.2% in December against 3.9% growth in the
previous month, while the manufacturing segment, which has a strong bearing on the IIP,
rose by 2.1%, compared to 3.1% in November 2014. In manufacturing sector, 13 out of the
22 industry groups have shown positive growth during the month of December 2014.
Industry group furniture manufacturing has shown the highest positive growth of 45.4%, on
the other hand, Radio, TV and communication equipment & apparatus’ has shown the
highest contraction of 70.4%. During April-December FY15 manufacturing grew by 1.2%
which is far lower than CSO’s revised estimate of 6.8% growth for the full financial year.
Meanwhile, electricity sector growth slowed down to 4.8% in December from double digit
growth at 10% in the previous month.
Use Based Classification of IIP: Capital Goods witnessing Improvement
The output of basic goods sector grew by 2.4% in December as compared to 7.1% in
November. Intermediate goods sector slowed down to 0.1% in December as compared to
4.5% growth in the previous month. Continuing its sluggish trend in this fiscal, the growth of
consumer goods sector, which contribute about 29.8% in the IIP index, recorded at 0.7% in
December as against contraction of 2.1% in previous month mainly impacted by downturn in
consumer durable sector. During April-December FY15, consumer durables sector output
declined by 15.2%, while the growth of consumer non-durables sector slowed down to 2.2%
as compared to 5.8% in the same period of previous fiscal.
Economic Research
February 2015

7. Economic Research Report
February 2015
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Capital goods, an indicator of investment demand in economy, expanded at 4.1% in the month
under review as compared to 6.6% growth in November. Capital goods output over the April-
December FY15 grew by 4.8% as compared to a contraction of 0.4% in corresponding period
of previous fiscal.
Outlook
Contrary to recently released GDP Data which shows that Indian economy is in good health,
IIP reflected gloomy picture. After witnessing around 4% growth in November, industrial
production declined to 1.7%, showing that demand in the economy is not picking up. Sluggish
growth in electricity generation and contraction at the rate of 1.7% in coal production during
January are likely to impact industrial production adversely in January. Furthermore, low
automobiles production growth to 2% in January from 6% in December and slowing down of
manufacturing PMI to 52.9 in January from 54.5 in December indicated that manufacturing has
remained lethargic during the month and will dampen the industrial production. Subdued
industrial production highlighted the need for interest rate cut by the RBI in order to boost the
industry demand as well as the investments in economy.
3.7%
5.6%
4.3%
0.9% 0.5%
2.6%
-4.2%
1.7%
1.7%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14 Dec'14
Mining Manufacturing Electricity IIP
Indian Industrial Production (YoY)
Economic Research
February 2015
Source: MOSPI

8. Economic Research Report
February 2015
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Trade Deficit narrows to 11-month low at $8.32 billion in January
Easing pressure on country’s external sector as well as domestic currency, India’s trade deficit
narrowed to 11-month low at $8.32 billion in month of January as compared to $9.43 billion in
December and $9.45 billion in the same month of previous year. The significant decline in
trade deficit led by falling imports on the back of easing global crude oil prices, though, exports
too have come down for second successive month in January.
India’s import during January was declined by 11.4% YoY to $32.2 billion, leading to
improvement in the trade balance situation. Continue its declining trend, Oil imports during the
month contracted by 37.5% to $8.25 billion from $13.19 billion in the corresponding period last
year due to the tumbling global oil prices which declined to six year low level during the
reported month. However, non-oil imports posted a 3.5% growth to $23.9 billion in January as
compared to $23.2 billion in the corresponding month of previous year. Gold imports increased
by 8.13% YoY to $1.6 billion in January higher than $1.34 billion recorded in the previous
month. During April-January FY15, India’s imports grew by 2.17% to $383.41 billion from
$375.25 billion reported in the same period of previous fiscal.
-20
-10
0
10
20
30
40
50
Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15
US$Billion
Exports Imports Oil imports Trade deficit
Trends in Merchandise Trade
Economic Research
February 2015
Source: Min. of Commerce

9. Economic Research Report
February 2015
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Rising concerns over the overseas shipments, Indian exports during January posted biggest
monthly decline this financial year with 11.2% YoY contraction at $23.9 billion. The exports of
petroleum products, having around 20% share in the country’s total exports, was declined by
48.7% to $2.4 billion in January 2014, as compared to over $4.6 billion a year ago due to the
lower global oil prices. Apart from oil products, the exports of other prominent items like
cotton yarn, chemicals, pharmaceuticals and gems and jewellery were also contracted in the
month under review. The outbound shipments of gems and jewellery were down by 4%,
along with chemicals and cotton yarn and fabrics witnessing contraction of 11% and 9%
during the reported month.
Double digit contraction in export was mainly due to low demand in the global markets
mainly in Euro Zone area. Furthermore, the high cost of credit, non-availability of interest
subvention schemes and delay in the announcement of foreign trade policy may also have
hurt exporters. Meanwhile, during the period of April-January FY15, the value of India’s
overseas shipments increased by 2.44% to $265.0 billion from $258.7 billion in the same
period of previous financial year. However, it appears difficult to achieve the set exports’
target of $340 billion for FY15 as it would require average exports of $37.5 billion per month
as against $24-25 billion per month in the past. Declining exports figure has also exerted
pressure on the government to announce more measures to protect export-driven industries.
Trade Outlook
India’s trade deficit during the first ten months of current fiscal widened to $118.4 billion as
against $116.5 billion in the same period of previous financial year. Indian import is likely to
remain low in coming months due to the low global oil price, however weak demand
conditions in Europe could dampen domestic exports.
Economic Research
February 2015

10. Economic Research Report
February 2015
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Base Year for CPI inflation shifted to 2012
The Central Statistics Office (CSO) has revised the Base Year of the CPI from 2010=100 to
2012=100. In this revised series, many methodological changes have been unified to make the
indices more robust. As per the new series, higher weight has been assigned to education and
health services, while the weight of food and fuel items was declined and house rent index data
has been widened with a view to present better picture regarding increasing housing rent in the
country. Furthermore, the weightage of group items have been changed to the Modified Mixed
Reference Period (MMRP) data of Consumer Expenditure Survey (CES), 2011-12 from CES
2004-05 in order to make it consistent with the international practice of shorter reference period
for most of the food items and longer reference period for the items of infrequent
consumption/purchase.
CPI Inflation rises slightly to 5.11% in January
The Consumer Price Index (CPI)-based inflation or retail inflation with the new base year 2012
increased to 5.11% YoY (provisional) in January compared to 4.3% in the previous month.
Though retail inflation increased as compared to previous month, it is still hovering well below
the Reserve Bank of India’s (RBI) medium term target of 6.0% by January 2016, rekindling
hopes of an interest rate cut by Central Bank in the coming months. The retail inflation in rural
area stood at 5.3% in January, above urban CPI inflation of 4.96%. However, rural Consumer
Food Price Index (CFPI) inflation stood at 5.7%, lower than the urban CFPI inflation of 6.96%
during the reported month.
Group Description Old Series of CPI (Weights computed
on the basis CES 2004-05)
Revised Series of CPI (Weights
computed on the basis CES 2011-12)
Food and beverages 47.58% 45.86%
Pan, tobacco and intoxicants 2.13% 2.38%
Clothing and Footwear 4.73% 6.53%
Housing 9.77% 10.07%
Fuel and Light 9.49% 6.84%
Miscellaneous 26.31% 28.32%
Total 100% 100%
Economic Research
February 2015
Source: MOSPI

11. Economic Research Report
February 2015
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Inflation for food & beverages, which accounts for around 46% of the retail inflation basket,
was recorded at 6.1% during the reported month. Among all the constituents that make the
CPI food & beverages index, the steepest rise was witnessed in fruits prices which went up
by 10.6% on annual basis. Moreover, inflation for pan, tobacco & intoxicants, recorded at a
high 8.2% while rate of price rise for clothing & footwear stood at 6.2% in January. Inflation
related to fuel & light stood at a muted 3.7% in January 2015 due to the low global crude oil
prices. Housing inflation stood at 5.1% and miscellaneous items inflation stood at 2.98%
during the month under review. The CFPI, compromising different weights of food items,
remained at 6.1% in January from a year earlier.
WPI Inflation turns Negative in January
The annual rate of inflation, based on monthly wholesale price index (WPI), declined by
0.39% YoY (provisional) in December as compared to 0.11% (provisional) in November and
5.1% during the corresponding month of the previous year. The latest reading was the lowest
level of inflation since June 2009 and mainly driven by lowest low prices of fuel and
manufactured products. However, inflation in food articles scaled to a six month high of 8%
from 5% in the previous month, reflecting the continued waning of the favourable base effect.
Though, price of potato and onion declined significantly in January, the inflation in fruits stood
still at double digit mark at 17.2% in the month under review.
There was also some spurt in vegetable prices which went up by 19.7% in January as
against 4.8% contraction in December. However, inflation for non-food articles declined by
4.1% in the month of January as against 3.1% contraction in the previous month mainly on
account of lower price of flowers, cotton seed, raw silk and raw cotton. On the whole,
inflation for primary articles, having weight of 20.12% in WPI index, rose to 3.3% in January
from a year earlier as compared to 2.2% contraction in the previous month. While, build up
inflation rate in the financial year so far was -0.1% as compared to a build up rate of 5.2% in
the corresponding period of the previous year.
Economic Research
February 2015

12. Economic Research Report
February 2015
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Fuel & Power, which has weight of 14.91% in WPI index, was remained the major contributor
to the low wholesale inflation in January 2015, witnessing negative inflation of 10.7% as
compared to 7.8% inflation in December. However, this decline does not come as a surprise
as global crude oil prices have fell to six year low level in January. In a pleasant surprise on
inflation revised front, November inflation figure was revised downward to -0.17% as
compared to 0% reported earlier.
The rate of inflation for manufactured products, having weight of 64.97% in the WPI index,
eased to 1.05% in January from 1.57% in December primarily driven by the lower prices of
metal products, rubber, chemicals and leathers products. Inflation related to non-food
manufactured products or core inflation, declined substantially to a 62-month low at 0.9% in
the reported month from 1.55% in December 2014. Among manufactured products, inflation in
chemicals products eased to 0.7% in January from 1.9% in the previous month due to the
lower price of rubber chemicals, non-cyclic compound, synthetic resin and basic organic
chemicals. Further, inflation in cotton, rubber & paper products, metals and leather etc. eased
in January on the back of fall in global prices of these commodities and crude oil. However,
inflation in food products increased by 1.8% in January from 1.7% in December due to higher
price of groundnut oil and sugar confectionary, copra oil, mustard & rapeseed oil and wheat
flour.
Inflation Trend (YoY basis) Sep'14 Oct'14 Nov'14 Dec'14 Jan'15
Primary Articles 2.0% 0.8% -1.6% 2.2% 3.3%
Food Articles 3.7% 2.7% 0.7% 5.2% 8.0%
Non-Food Articles 0.7% -1.4% -3.7 -3.1 -4.1
Fuel & Power 1.3% 0.5% -4.5% -7.8% -10.7%
Manufactured Products 2.9% 2.5% 1.9% 1.6% 1.1%
Economic Research
February 2015
Source: Min. of Commerce

13. Economic Research Report
February 2015
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Inflation Outlook
The average price of Indian crude basket has corrected around 27% by February 16 from
January average price of US$48 per barrel, which could result in upward revision in fuel prices.
Meanwhile, oil prices are still considerable low as compare to the year ago period and thus do
not pose immediate risk to inflation. However, continued waning of the favorable base effect for
inflation, firming prices of food items mainly proteins as well as quick reversal in crude oil prices
are likely to remain the near term key risks for inflation.
-1
0
1
2
3
4
5
6
7
Jan'14 Feb'14 Mar'14 Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15
WPI Inflation (%)
Economic Research
February 2015
Source: Min. of Commerce

14. Economic Research Report
February 2015
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Services PMI indicates Solid Expansion in Business Activity in January
The activity in Indian services sector, which accounts for around 60% of country’s GDP, grew
at solid pace in January on the back of increase in new business orders amid solid demand
conditions. The HSBC services Purchasing Managers’ Index (PMI), based on the survey of
around 350 private service sector companies, rose from 51.1 in December to 52.4 in
January, above the crucial 50 mark for the ninth consecutive month that separates growth
from contraction.
Domestic companies reported sustained growth in new business for the ninth successive
month in January and linked higher new work inflows to prevailing firm demand conditions
and new marketing initiatives. The new business sub-index, which measures new work
orders, rose to 52.1 in the reported month from 51.8 in December. Among the six monitored
sub-sectors, Other Services segment was remained best performing sub-sector, while the
sharpest shrinkage in activity occurred in Financial Intermediation. Indicating a growth in
business activity overall, The HSBC India Composite Output Index, comprising both
manufacturing and services, rose to 53.3 in January from 52.9 in the previous month. Unlike
the strong growth in activity, payroll numbers in the Indian service sector rose only slightly
and the rate of job creation was also slower than the historical average.
On the inflation front, the HSBC survey indicated that both input and output prices rose
further, though at a modest pace. Input costs faced by Indian services firms increased for the
second straight month in January after falling for the first time in more than five-and-a-half
years during November 2014. Accordingly, services firms also increased their output prices
in January, indicating that the inflation could rise in coming future. Meanwhile, services firms
are remained optimistic regarding the 12-month outlook for activity on the back of anticipated
improvements in demand and new commercial initiatives.
Manufacturing PMI Slows Down to 52.9 in January
Growth in Indian manufacturing activity slipped in January from December’s two-year high as
new business orders rose at a weaker rate as compared to previous month. The HSBC India
Purchasing Managers' Index (PMI), a headline index designed to measure the overall health
of the manufacturing sector, fell to three month low to 52.9 in January from 54.5 in
December.
Economic Research
February 2015

15. Economic Research Report
February 2015
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Despite slowing since December, the latest reading signaled expansion in business conditions
as the index remained above the crucial 50 mark for the fifteenth consecutive month that
separates growth from contraction. New orders, both from home and from abroad, expanded
during month, which have driven manufacturers to scaled up production. As a result, business
conditions in manufacturing sector improved at a solid rate, albeit more slowly than in the
previous month. Among the three monitored sub-sectors, consumer goods remained the best
performing segment for the third consecutive month.
The HSBC survey further indicated that the pace of expansion in exports remained solid
overall and stronger than the historical average. However, growth in output and new business
continued to have marginal impact on employment as workforce numbers rose only marginally
during the month under review. Amid rising demand and slow improvement in employee level,
backlogs of work rose at the fastest rate in a year with some firms commenting on limited
installed capacity. Purchasing activity also rose in January with consumer goods sub-sector
witnessing big surge in input stocks buying. On inflation front, manufactures reported that input
costs continued to increase in January, extending the current period of inflation which began in
April 2009. However, the rate of inflation slowed to the weakest in that sequence, driven by
lower prices paid for metals, chemicals, plastics and energy. Consequently, output charges
also rose fractionally during the month.
47
48
49
50
51
52
53
54
55
Apr'14 May'14 Jun'14 Jul'14 Aug'14 Sep'14 Oct'14 Nov'14 Dec'14 Jan'15
Manufacturing Services
HSBC Purchasing Manager's Index
Economic Research
February 2015
Source: HSBC, Markiteconomics

16. Economic Research Report
February 2015
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Satish Kumar Sharma
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Economic Research
February 2015