Synopsis:
India’s economic activity soared to its strongest level in nearly 14 years, propelled by robust demand across both manufacturing and services sectors. The latest HSBC Purchasing Managers’ Index (PMI) surged to 62.2, highlighting significant expansion. While input inflation has eased, the persistent demand surge may defer rate cuts as inflationary pressures are anticipated to linger.

India’s business activity surged to its fastest pace in almost 14 years this month, buoyed by robust demand and accompanied by easing input inflation and positive job growth, according to a recent survey.

The country appears poised to maintain its position as the world’s fastest-growing major economy, following a string of strong expansion periods in recent quarters.

The HSBC flash India Composite Purchasing Managers’ Index (PMI), compiled by S&P Global, climbed to 62.2 this month from March’s final reading of 61.8, consistently staying above the 50-mark indicating expansion since August 2021.

Notably, both manufacturing and services sectors performed strongly, driven by increased new orders, resulting in the highest composite output index since June 2010, as highlighted by Pranjul Bhandari, chief India economist at HSBC.

Services activity led the expansion, reaching a three-month high at 61.7, fueled by accelerating new business. Manufacturing PMI remained robust at 59.1, with output and new orders growing at a solid pace, albeit slightly slower than the previous month.

International demand remained solid, reflecting the highest composite sub-index since its inclusion in the survey in September 2014. Strong sales boosted business outlook for the coming 12 months, particularly in manufacturing, which saw the fastest job growth in one-and-a-half years.

Although services firms experienced slower employment growth compared to March, efforts to meet rising demand continued to support overall job creation. Input costs cooled for both goods producers and services providers, yet strong demand enabled the passing on of expenses to customers.

However, a stronger increase in output costs among manufacturing firms, contrasted with a slower rise in the services industry, indicates that inflation may persist above the Reserve Bank of India’s 4% medium-term target, delaying any consideration of rate cuts in the near future.