Manufacturing activity in India expanded for a second straight month in May to its highest in eight months, a survey showed; reflecting a revival in domestic demand but export orders remained weak.

The Market Purchasing Managers’ Index (PMI) based on a survey of 500 companies, rose to 55.7 in May from April’s 53.3, well above the threshold of 50 that separates expansion from contraction.

It hit a trough of 44.4 in December and has steadily risen since then.

“Data show that the sector is currently being carried by robust domestic demand, as export sales continued to fall,” said Markit economist Gemma Wallace.

The manufacturing index was boosted mainly by the new orders index, which rose to 59.1 from 54.9 in April.

Although domestic demand improved, the pricing power of manufacturers was hurt by intense competition, while higher commodity prices also pushed up input prices, Wallace said.

Asia’s third largest economy grew a faster-than-expected 5.8 per cent from a year earlier in January-March, helped by strength in the farm and services sectors. It expanded 6.7 per cent for the whole of the 2008/09 fiscal year.

The economy grew an average of 9.4 per cent in the previous three years and the central bank expects it to expand by about 6 per cent in the current financial year ending in March 2010.

Manufacturing makes up about 15 per cent of India’s gross domestic product. Industrial output fell 2.3 per cent from a year earlier in March, its steepest annual pace in at least 14 years.

The Reserve Bank and the government have taken aggressive steps since October to stimulate the economy. The key short-term lending rate, for instance, has been cut by 425 basis points in six moves to stand at 4.75 per cent.

Source: Financial Express