India’s Business Activity Surges in July, Driven by Strong Demand and Job Creation

India’s business activity surged to its fastest pace in three months this July, fueled by robust demand, particularly in the services sector. A recent survey revealed that companies hired at the quickest rate in over 18 years, reflecting sustained growth in the private sector.

According to HSBC’s flash India composite purchasing managers’ index (PMI), compiled by S&P Global, the index rose to 61.4 in July, up from June’s 60.9. This marks three years of continuous expansion, with the 50-level separating growth from contraction.

“The Flash Composite Output Index indicated continued robust growth in India’s private sector,” stated Pranjul Bhandari, chief India economist at HSBC. The data highlights a significant rise in output, driven by increased business activity in both the manufacturing and services sectors.

The services sector, a dominant force in the economy, saw its PMI rise to a four-month high of 61.1 in July from 60.5 in June. Manufacturing also showed strong growth, with the factory PMI climbing to 58.5 from 58.3, its highest since April.

Favorable market conditions, strong client demand, and enhanced technology contributed to the improvement in private sector activity. New business in the services industry and manufacturing orders remained robust, further supporting this growth.

July also marked the fastest pace of job creation since April 2006, bolstering overall business confidence at the start of the quarter. “Companies turned more optimistic in July, following a moderation in business confidence in June,” Bhandari added.

However, the report noted a continuing trend of rising input cost inflation in both sectors, prompting firms to raise sales prices. Prices charged increased at the steepest pace in over 11 years, as robust demand allowed firms to pass on high material, transportation, and labor costs to clients.

These higher prices could impact the Reserve Bank of India’s interest rate outlook, which aims to return inflation to its 4% medium-term target. Despite this, the central bank is expected to cut its key policy rate next quarter.

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